TMI Blog2021 (8) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... d - the manner in which the unutilized ITC should be as per the Rules made in this regard. It is clear from the proviso to the sub-rule (1) of Rule 41 of the CGST Rules, 2017 that the input tax credit shall be apportioned between the new units in case of a demerger in the ratio of the value of assets of the new units as specified in the demerger scheme. Value of assets - H ELD THAT:- The explanation to the sub-rule (1) of Rule 41 of the CGST Rules states that the value of assets means the value of the entire assets of the business, whether or not input tax credit has been availed or not. The assets which are outside the GST also form the assets and is included in the scope of entire assets and hence the value of assets which are outside the purview of GST is required to be included in the value of assets for apportionment towards transfer of input tax credit in case of demerger in terms of Section 18(3) of CGST Act, 2017 read with Rule 41(1) of CGST Rules, 2017. Whether the assets which are created to comply with the requirements of accounting standards are also forming the part of the entire assets and hence are includible in the scope of entire assets ? - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technology products and services and is primarily engaged in producing, selling or licensing computer hardware, middleware and software and in providing IT implementation, hosting and consulting services in areas ranging from mainframe computers to nanotechnology. 3. The applicant has sought advance ruling in respect of the following question:- i. Whether the value of assets which are outside the purview of GST is required to be included in the value of assets for the purpose of apportionment towards transfer of input tax credit in case of de-merger in terms of Section 18(3) of CGST Act, 2017 read with Rule 41(1) of CGST Rules, 2017? ii. If the answer to Question (i) is yes, whether following assets are required to be considered for the purpose of determining the value of assets for apportionment towards transfer of input tax credit in case of de-merger in terms of Section 18(3) of CGST Act, 2017 read with Rule 41(1) of CGST Rules, 2017:- a. Assets which are created only to comply with the requirements of the Accounting Standards; b. Assets which are not being transferred as part of de-merger. iii. If the answers to Question 1 and / or 2 are yes, whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red for the purpose of transfer of credit. 6. Applicant s Interpretation of Law: 6.1 Section 18(3) of the CGST Act, 2017 provides for the transfer of input tax credit which remains unutilized in the electronic credit ledger in cases of business re-organization. It is stated that where there is a change in the constitution of a registered person on account of sale, merger, demerger, etc. 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 the electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed. Extract of the same has been enumerated as below: (3) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put tax credit in case of business re-organization; however, the circular as well as the legal backdrop produced above is inter alia ambiguous to the extent of inclusion of the below assets for the computation of asset ratio required to transfer ITC:- a. Assets which are outside the purview of GST b. Assets which are created only to comply with the requirement of the Accounting Standards; c. Assets which are not being transferred as part of demerger to the transferee; 6.7 The applicant relies on the judgment of the Hon ble Supreme Court in the case of West Bengal State Warehousing Corporation Vs. Indrapuri Studio Pvt. Ltd. (Civil Appeal No. 3865 of 2006) has examined the meaning of inclusive and exhaustive definitions as appearing in various statutes. 6.8 Based on the above, the word includes when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include. It is a more extensive definition and requires to also include such similar things as provided in a particular definition. The word means and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify the said definition and accordingly the value of such assets should not be included in the value of assets for the purpose of computing the assets ratio for apportionment of ITC.- The value of assets created to comply with the requirements of the Accounting Standards are not required to be considered for the purpose of computing the assets ratio for apportionment of ITC 6.13 The applicant states that assets have not been defined under GST. Accordingly, as per the Oxford Dictionary, asset means an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies*. In the instant case, the assets which are created due to the requirement of Accounting Standard i.e. Building leases and deferred tax asset shall not be having any value to meet debts, commitments or legacies as it shall largely be treated as book adjustments and not an asset per se. Therefore, as the same is not qualifying the definition of assets, it should not be considered in the numerator as well as the denominator as part of value of assets for the purpose of computing the asset ratio required for apportionment for transfer of input tax cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistrations and hence, entire value pertaining to such assets should be allocated to the head office of IBM India for the purpose of computing the asset ratio for transfer of input tax credit. PERSONAL HEARING / PROCEEDINGS HELD ON 30-06-2021 7. Sri Sachin Agarwal, Chartered Accountant Authorised Representative of the applicant appeared for personal hearing proceedings held on 30-06-2021 and reiterated the facts narrated in their application. FINDINGS DISCUSSION 8. At the outset we would like to make it clear that the provisions of CGST Act 2017 and KGST Act, 2017 are in pari-materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act. 9. We have considered the submissions made by the applicant in their application for advance ruling as well as the submissions made by applicant and his authorized representatives during the hearing. We have also considered the issues involved on which advance ruling is sought by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his regard. 10.5 Rule 41 of the CGST Rules, 2017 reads as under:- 41. Transfer of credit on sale, merger, amalgamation, lease or transfer of a business.- (1) A registered person shall, in the event of sale, merger, demerger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee: Provided that in the case of demerger, 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. [ Explanation : - For the purpose of this sub-rule, it is hereby clarified that the value of assets means the value of the entire assets of the business, whether or not input tax credit has been availed thereon.] (2) The transferor shall also submit a copy of a certificate issued by a practicing-chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the State level (at the level of distinct person) and not at the all-India level. Illustration : A company XYZ is registered in two States of M.P. and U.P. Its total value of assets is worth ₹ 100 crore, while its assets in State of M.P. and U.P are ₹ 60 crore and ₹ 40 crore respectively. It demerges a part of its business to company ABC. As a part of such demerger, assets of XYZ amounting to ₹ 30 Crore are transferred to company ABC in State of M.P, while assets amounting to ₹ 10 crore only are transferred to ABC in State of U.P. (Total assets amounting to ₹ 40 crore at all-India level are transferred from XYZ to ABC). The unutilized ITC of XYZ in State of M.P. shall be transferred to ABC on the basis of ratio of value of assets in State of M.P., i.e. 30/60 = 0.5 and not on the basis of all-India ratio of value of assets, i.e. 40/100=0.4. Similarly, unutilized ITC of XYZ in State of U.P. will be transferred to ABC in ratio of value of assets in State of U.P.,i.e. 10/40 = 0.25. 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 hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to calculate the ratio of value of assets, as prescribed in the proviso to rule 41 (1) of the CGST Rules, 2017? Clarification : 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 provisions 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 subrule (1) of rule 41 of the CGST Rules, while the ratio of the value of assets should be taken as on the appointed date of demerger , the said ratio is to be applied on the ITC balance of the transferor on the date of filing FORM GST ITC - 02 to calculate the amount to transferable ITC. 12. From the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of statutes the court shall always presume that every part of the statute should have effect. The legislature is deemed not to waste its words or to say anything in vain and a construction which attributes redundancy to the Legislature cannot be accepted. 15.1 From the above judgement, the words entire assets should be given meaning to denote all the assets of the business which are allotted to the demerged companies. The words whether or not input tax credit has been availed thereon only gives more clarity to the words entire assets , what should be considered and what not. It only states that the availment or not of ITC would not preclude the consideration of the assets in the calculation of the ITC to be apportioned between the demerged entities. 16. Regarding the question 1, as explained earlier, the assets which are outside the GST also form the assets and is included in the scope of entire assets and hence the value of assets which are outside the purview of GST is required to be included in the value of assets for apportionment towards transfer of input tax credit in case of demerger in terms of Section 18(3) of CGST Act, 2017 read with Rule 41(1) of CGST ..... X X X X Extracts X X X X X X X X Extracts X X X X
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