In case of death of proprietor, whether Reversal of ITC is required?

[Rajan Atrawalkar]

In case of death of proprietor, business is continued by successor / legal heir and has obtained new registration. In such case it is Transfer of business as Going Concern and will be treated as Supply of service (Schedule II para 4 (c) ). This supply will be covered by Notification 12 para 2 and will be exempt supply. The balance ITC in the credit ledger can be transferred to the transferee by filing ITC 02.

Now the question is that whether as per section 17 (2) ITC previously claimed on the Stock of Goods to be transferred to new business required to be reversed being Exempt supply ? or to put it differently, Does the transferor is required to pay Tax on the stock? The transfer of stock will be treated as Exempt supply. Transfer of business is supply of Service. There may be cases where there is Nil balance in credit ledgers and having huge stock. This happens when the business is running is for a longer period and the profit portion has slowly converted in to stock.

AI Summary

GST Impact on Business Transfer After Proprietor's Death: No ITC Reversal Needed Per Notification 12/2017. The discussion revolves around the implications of GST on the transfer of business upon the death of a proprietor. It explores whether the reversal of Input Tax Credit (ITC) is necessary when a business, continued by a legal heir, is transferred as a going concern. The consensus among participants is that such a transfer is considered a supply of service, exempt under GST Notification 12/2017, and does not necessitate ITC reversal. Some argue that closing stock is not used for exempt supply, hence no ITC reversal is required. Others highlight legal provisions supporting the transfer of unutilized ITC without reversal obligations.