MERGER OF BUSINESS AND ITC-002

[NILESH PITALE]

Dear Experts

My One of the Client was carrying Proprietary Business, From 1st April 2021 he merged his Proprietary Business with PVT Limited .There is ITC Credit available in the Credit Ledger of Proprietary Business.

Under this Circumstances whether It is necessary to Canceled Proprietary's GST no. because after six month he will start to provide renting business in Proprietary which will be taxable.

Can we Filed ITC-002 (Transfer of ITC) without cancellation of Proprietary's GST no.

If Cancellation is Mandatory then can we canceled Now to get Effect of 1.4.2021

is there any time limit to filed ITC-002

Please Guide.

[YAGAY andSUN]

In case of transfer of business by way of sale of business, merger or demerger, a registered taxpayer can transfer the input tax credit unutilised and available in his electronic credit ledger into another business by filing a declaration in Form GST ITC-02. It must be filed by the transferor and action must be taken by the transferee. There is no time limit specified under the Act or Rules.After filing of Form GST ITC-02 by the transferor, the transferee can either accept or reject the transfer.

[Shilpi Jain]

There is no necessity that the registration be canceled by the transferor. Also there is no time limit mentioned in the law for filing itc02

[ABHISHEK TRIPATHI]

Dear Nilesh Ji,

Whatever NCLT Orders I have seen for Merger Scheme, they all state that the Transferor Company shall be dissolved. In merger, it usually the dissolution of the transferor-company. You have to see the dissolution is when effective date or appointed date or some other day. So, the proprietor will get dissolved.

If the transferor company dissolved on 01.04.2021, then there is no proprietor. Its legal existence has gone after the merger. Thus, cannot continue with the registration.

Looking at this basic concept of merger, we have S. 18(3) for ITC and S. 29(1)(a) for cancellation of business.

Avail the ITC in accordance with S. 18 and then cancel the registration in accordance with S. 29.

You may face problem with the retrospective cancellation of the registration. As there seems no provision for your case covering retrospective cancellation, but you don’t need to worry, as the Act lacks such circumstances.

[Sandeep Garg]

GST Laws talk about transfer of business and not transfer of proprietary firm. In case, you have two businesses and you transfer one business, other business will remain there. Hence, proprietor need not to surrender his GST number. He is required to transfer ITC pertaining to merged business and not others.

[YAGAY andSUN]

The principle of ongoing concern will also applicable on such transfer/mergers/takeover etc.

[ABHISHEK TRIPATHI]

Dear Nilesh Ji,

Post merger, the transferor company simply cease to exist. What will you do by keeping the registration? That registration is of no use because the legal entity is not into existence.

S. 29(1)(a) the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of;

The above highlighted business:- The interpretation of word 'business' is not restricted to Pvt. or Public Ltd. or something else. Proprietorship is also well within the ambit of business. Company is generally a business organization and Proprietorship is individual business. I think even proprietorship is covered well within 29(1)(a).

Query: What if you provide renting business using Proprietorship GST Registration?

You may argue cancellation needed not needed before the department. But, what about cases when you issue invoice, collect taxes, file return using Proprietorship GST Registration. Can a non-existence company do all this? Anyway, if I am department, will pull your hard under the ambit of operation of law (registration became invalid), and still you acted like a registered person, hence SCN.

Even how logical it sounds to keep registration of dissolved company and thereafter using that dissolved company to provide taxable supply after six months.

*The view is to the extent of understanding of merger as dissolution of legal entity.

AI Summary

Transfer of input tax credit via ITC-02 permitted; cancellation may be required if proprietorship is dissolved, no time limit. A registered taxpayer may transfer unutilised input tax credit of a transferred business by filing Form ITC-02, with the transferor filing the declaration and the transferee accepting or rejecting the credit. No statutory time limit for filing ITC-02 is specified. Where a proprietorship is dissolved on merger into a company, the proprietorship's GST registration falls within cancellation grounds; ITC attributable to the merged business should be transferred and registration cancelled to reflect cessation of the legal entity.