TaxTMI 
TaxTMI 
Clarification in respect of apportionment of input tax credit (ITC) in cases of business reorganization under section 18(3) of the HGST Act read with rule 41(1) of HGST Rules
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....malgamation 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 Haryana Goods and Services Tax Act, 2017 (hereinafter referred to as the HGST Act) and sub-rule (1) of rule 41 of the Haryana Goods and Services Tax Rules, 2017 (hereinafter referred to as "the HGST Rules") in the context of business reorganization. 2. According to sub-section (3) of section 18 of the HGST 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 allowed to....
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....cation a. (i) In case of demerger, proviso to rule 41(1) of the HGST 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. (ii) Is the transferor required to file Form GST ITC-02 in all States where it is registered ? Proviso to sub-rule (1) of rule 41 of the HGST 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 HGST Rules states that "value of as....
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.... assets in State of U. P., i. e., 10/40 = 0.25. 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 HGST Rules explicitly mentions 'demerger'. Other forms of business reorganization 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 liabilities, whether the proviso to rule 41(1) of the HGST Rules, 2017 shall be applicable to calculate the amount of transferable ITC ? Yes, the formula for apportionment of ITC, as prescribed under proviso to sub-rule (1) ....
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.... IGST credit) should not exceed the amount of ITC to be transferred, as determined under sub-rule (1) of rule 41 of the HGST 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) ....
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....d, amalgamated, leased or transferred business in such manner as may be prescribed."Further, sub-rule (1) of rule 41 of the HGST Rules prescribes that the registered person shall file the details in Form GST ITC-02 for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee.A conjoint reading of sub-section (3) of section 18 of the HGST Act along with sub-rule (1) of rule 41 of the HGST 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. According to section 232(6) of the Companies Act, 2013, "The scheme under this section shall clearly indicate an ....