Transfer of ITC upon conversion of company

[ROHIT GOEL]

In one of the cases, company was converted into LLP in July 2019. The company had certain unclaimed ITC for FY 2018-19 which it had decided to claim by Sep 2019 returns.

However, upon conversion, the unclaimed ITC was claimed in the GSTR-3B for Sep 2019 of the succeeding LLP. Section 18 r.w. Rule 41 prescribes that upon succession, the ITC may be t/f to succeeding entity by way of filing of ITC-02 by previous entity. The actions of the company appear to be contrary to the provisions.

Is there any alternate remedy to the same or would the ITC be deemed ineligible in hands of the LLP?

[ABHISHEK TRIPATHI]

Dear Rohit Sir,

First problem, before conversion the company never took the ITC.

Second problem, after conversion the new entity took ITC which they legally don’t have the right to do so. Because entitlement of ITC is against the registered person i.e., before conversion that company is only entitle to claim ITC and no one else (LLP is a new entity and new registered person who has no right on some other registered persons ITC).

That’s why after conversion its only ‘transfer’ of ITC.

Now you can't reverse the ITC and file form GST ITC-02, because claiming ITC will be time barred and also there is no such entity to claim it.

Just a procedural lapse though such a situation.

AI Summary

Company's LLP Conversion Results in Ineligible ITC Claim Due to Non-compliance with Section 18 and Rule 41 Procedures A company converted into an LLP in July 2019 had unclaimed Input Tax Credit (ITC) from FY 2018-19, which it intended to claim by September 2019. However, the ITC was claimed by the LLP in its GSTR-3B for September 2019, contrary to Section 18 read with Rule 41, which requires the filing of ITC-02 for ITC transfer to the succeeding entity. The response indicates that the LLP was not entitled to claim the ITC, as it belongs to the original company. The procedural lapse means the ITC cannot be reversed or transferred, rendering it ineligible for the LLP.