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

Transfer of Input Tax Credit: successor entity claiming ITC must follow ITC-02 transfer mechanism or face time-barred procedural issues.
The unclaimed Input Tax Credit belonged to the company as the pre-conversion registered person and, under Section 18 read with Rule 41, may be transferred to a successor only by filing Form ITC-02 by the transferor. The successor LLP's independent claim in its post-conversion return bypassed the transfer mechanism and, given the absence of the original registered person and time-bar constraints, reversal or proper transfer by the transferor is practically foreclosed.