Transfer of ITC without filing ITC-02

[ROHIT GOEL]

Dear Experts,

Assessee was a Pvt Ltd company and got converted into LLP in FY 2019-20. It voluntarily cancelled GST Regn of company and got new Regn as LLP. Post conversion, it realised that it did not claim about Rs 25 lakhs eligible ITC which was reflected in GSTR-2A of company. This ITC was claimed by LLP post conversion in its 3B. Now GST Deptt has raised demand on LLP as it has claimed Rs 25 lakhs excess ITC which is not reflected in its GSTR-2A but in 2A of company. I understand that correct route would have been to claim ITC in GSTR-3B of company and then transfer to LLP via ITC-02.

However, as per deeming provisions of LLP Act 2008, LLP was entitled to all rights vested in favour of company post conversion. Can assessee contest that ITC could still be claimed despite not appearing in 2A of LLP and despite not filing ITC-02?

[Ganeshan Kalyani]

Whether PAN of company and LLP is same or different? 

[Shilpi Jain]

Difficult to get relief at the lower levels. Consider filing a Writ in HC. I vaguely remember that there was a favourable decision on this aspect from a HC.

[VENU K]

ITC becomes a vested right only on fulfilment of pre and post conditions. One of the most important conditions for availment of ITC is by filing 3B within the time allowed in Sec 16(4). Further pre conditions are receipt of goods,possession of invoice,etc .

Certain post conditions are payment within 180 days , actual use in business in future if not immediately used.

From the question I get the impression that the company itself did not claim credit in 3B in time. In such a scenario, ITC would be irrevocable lost even for the company. If this were true, Vested Rights argument as per LLP Act will not come to your rescue. Otherwise, if the company had claimed ITC legally and if it had become a vested right of the company, then, may be the High Court as an equitable remedy could come to your rescue using its inherent powers.

[ROHIT GOEL]

Dear experts,

GSTR-3B was not filed post June 2019 as GSTN of company was surrendered. GSTR-3B was filed by LLP henceforth. In August 2019, GSTR-3B was filed by LLP and therein it took unclaimed ITC as per GSTR-2A of company also. So yes GSTR-3B was not filed July 2019 onwards by co. but GSTR-3B before this period was always filed and ITC taken by LLP was for such earlier period only. I would also like to highlight that the vesting as per section 58 of LLP Act is non obstante i.e. overriding on any other law in force.

Welcoming your further inputs as we evaluate whether to file appeal or to avail benefit of section 128A.

[Yash Shah]

As per section 18(3) read with rule 41, "where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provision of transfer of liabilities, the said registered person shall be allowed to transfer the input tax in FORM GST ITC 02, electronically on the common portal along with the request for transfer of unutilised input tax credit lying in his electronic credit ledger."

As per para 6 of schedule 3 & sec 58 of LLP, "All tangible (movable and immovable) property as well as intangible property vested in the company, all assets, interests, rights, privileges, liabilities, obligations relating to the company and the whole of the undertaking of the company shall be transferred to and shall vest in the Limited Liability Partnership"

Therefore as per the above provision LLP is entitled to all rights vested in the company post-conversion, including rights to ITC, However, under GST law, procedural requirements must be followed to ensure the transfer of ITC. In our case ITC is claimed in GSTR 3b while it is not reflected in GSTR 2A of LLP due to the procedure to transfer the ITC has not followed so the department's demand for excess ITC appears valid.

However, the Right of  ITC can not be denied on grounds of procedural error as there is no intention of fraud. In the case of TVL. MOON LABELS VERSUS THE GOVERNMENT OF INDIA, REP. BY ITS DIRECTOR, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS, NEW DELHI, THE GOVERNMENT OF TAMIL NADU, THE PRINCIPAL CHIEF COMMISSIONER OF GST & CENTRAL EXCISE, TAMIL NADU & PUDUCHERRY, THE STATE TAX OFFICER, THE DEPUTY STATE TAX OFFICER – 1, KARUR-3 ASSESSMENT CIRCLE, KARUR - 2024 (6) TMI 1242 - MADRAS HIGH COURTwhere held that procedural infractions in transitioning the credit should not lead to denial of the credit. 

This case law can be used as a remedy against the department's demand.

AI Summary

Transfer of Input Tax Credit: failure to file ITC 02 can trigger departmental demand despite vesting on conversion. An LLP claimed input tax credit in its GSTR 3B after converting from a company without filing Form GST ITC 02; the department raised a demand because the credit remained reflected in the company's GSTR 2A. GST rules require electronic transfer via ITC 02 on change of constitution, making procedural compliance the basis for adjustment, while the LLP Act's vesting of rights and judicial precedents resisting denial of credit for procedural lapses form the core opposing arguments.