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TMI BlogClarification in respect of apportionment of input tax credit (ITC) in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST RulesX X X X Extracts X X X X X X X X Extracts X X X X ..... organization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules - reg. The Department of Revenue, Central Board of Indirect Taxes and Customs, GST Policy Wing vide Circular No. 133/03/2020-GST dated 23rd March, 2020 has issued a clarification in respect of apportionment of input tax credit (ITC) in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules, in order to ensure uniformity in the implementation of the provisions of law across the field formations, which is annexed herewith. In exercise of powers conferred by section 168 of the Tripura State Goods and Services Tax Act, 2017 (Tripura Act No. 9 of 2017) for the purpose of uniformity in the implementation of the Act it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the context of business reorganization. 2. According to sub-section (3) of section 18 of the CGST 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 transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed." Further, according to sub-rule (1) of rule 41 of the CGST Rules: "A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CGST 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 the provisions of the CGST Act, a person/ company (having same PAN) is required to obtain separate registration in different States and each such registration is considered a distinct person for the purpose of the Act. Accordingly, for the purpose of apportionment of ITC pursuant to a demerger under sub-rule (1) of rule 41 of the CGST Rules, the value of assets of the new units is to be taken at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Wherever business reorganization results in partial transfer of business assets along with liabilities, whether the proviso to rule 41(1) of the CGST 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) of rule 41 of the CGST Rules, shall be applicable for all forms of business re-organization that results in partial transfer of business assets along with liabilities. c. (i) Whether the ratio of value of assets, as prescribed under proviso to rule 41 (1) of the CGST Rules, shall be applied in respect of each of the heads of input tax credit viz. CGST/ SGST/ IGST/ Cess? No, the ratio of value of assets, as prescribed under pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) [Col (4) - Col (5)] Delhi 70% CGST 10,00,000 10,00,000 0 SGST 10,00,000 10,00,000 0 IGST 30,00,000 15,00,000 15,00,000 Total 50,00,000 35,00,000 15,00,000 Haryana 40% CGST 25,00,000 3,00,000 22,00,000 SGST 25,00,000 5,00,000 20,00,000 IGST 20,00,000 20,00,000 0 Total 70,00,000 28,00,000 42,00,000 d. (i) In order to calculate the amount of transferable ITC, the apportionment formula under proviso t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, "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 indicate that the "appointed date of demerger" is the date from which the scheme for demerger comes into force and it is specified in the respective scheme of demerger. Therefore, for the purpose of apportionment of ITC under rule sub-rule (1) of rule 41 of the CGST Rules, the ratio of the value of assets should be taken as on the "appointed date of demerger". In other words, for the purpose of apportionment of ITC under sub-rule (1) of rule 41 of the CGST Rules, while the ratio of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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