Clarification in respect of apportionment of input tax credit (ITC) in cases of business reorganization under section 18(3) of JGST Act read with rule 41(1) of JGST Rules

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....rger, amalgamation or change in the constitution/ownership of business. Certain doubts have been raised regarding the interpretation of sub-section (3) of section 18 of the Jharkhand Goods and Services Tax Act, 2017 (hereinafter referred to as "the JGST Act") and sub-rule (1) of rule 41 of the Jharkhand Goods and Services Tax Rules, 2017 (hereinafter referred to as "the JGST Rules") in the context of business reorganization. 2. According to sub-section (3) of section 18 of the JGST Act,-- "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 provisions for transfer of liabilities, the said registered person shall be allow....

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....se of demerger, proviso to rule 41(1) of the JGST Rules provides that the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme. However, it is not clear as to whether the value of assets of the new units is to be considered at State level or at all-India level. Proviso to sub-rule (1) of rule 41 of the JGST Rules provides for apportionment of the input tax credit in the ratio of the value of assets of the new units as specified in the demerger scheme. Further, the explanation to sub-rule (1) of rule 41 of the JGST Rules states that "value of assets" means the value of the entire assets of the business, whether or not input tax credit has been availed thereon. Under t....

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.... registered ? No. The transferor is required to file Form GST ITC-02 only in those States where both transferor and transferee are registered. b. The proviso to rule 41(1) of the JGST Rules explicitly mentions 'demerger'. Other forms of business reorganization Yes, the formula for apportionment of ITC, as prescribed under proviso to sub-rule (1) of rule 41 of the JGST Rules, shall be applicable for all forms of business re-organization that results in partial transfer of business assets along with liabilities. where part of business is hived off or business in transferred as a going concern, etc. have not been covered in the said rule. Wherever business reorganization results in partial transfer of business assets along with liabilitie....

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....mount of ITC to be transferred, as determined under sub-rule (1) of rule 41 of the JGST Rules (refer 3(c)(i) above). However, the transferor shall be at liberty to determine the amount to be transferred under each tax head (IGST, CGST, SGST/UTGST) within this total amount, subject to the ITC balance available with the transferor under the concerned tax head. This is shown in the illustration below : (1) (2) (3) (4) (5) (6) State Asset ratio of transferee Tax heads ITC balance of transferor (pre-apportionment) as on the date of filing Form GST ITC-02) Total amount of ITC transferred to the transferee under Form GST ITC-02 ITC balance of transferor (post-apportionment) after filing of Form GST ITC-02) ITC balance of transferor (po....

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....) of section 18 of the JGST Act along with sub-rule (1) of rule 41 of the JGST Rules would imply that the apportionment formula shall be applied on the ITC balance of the transferor as available in electronic credit ledger on the date of filing of Form GST ITC-02 by the transferor. (ii) Which date shall be relevant to calculate the ratio of value of assets, as prescribed in the proviso to rule 41(1) of the JGST Rules, 2017 ? According to section 232(6) of the Companies Act, 2013, "The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date". The said legal provision appears to indicat....