Goods & Service Tax
1. GSTN enabled auto-population of HSN description based on HSN code
The Goods and Services Tax Network (GSTN) has enabled auto-population of Harmonized System of Nomenclature (HSN) description based on HSN code and has made it an un editable field on the GST Portal.
2. GSTN: Due date for filing application for revocation of cancellation of registration falling between April 15, 2021 to June 29, 2021 extended to June 30, 2021
The GSTN states that in view of the decision of GST Council taken in its 43rd meeting dated May 28, 2021 the timeline for filing of the ‘Application for Revocation of Cancellation’ for those applicants, for whom the due date of filing such application was falling between April 15, 2021 to June 29, 2021, has been extended up to June 30, 2021.
3. Retrospective amendment for payment of interest on net tax liability notified w.e.f. July 1, 2017
The Ministry of Finance issued Press Release dated May 28, 2021 pertaining to decisions taken in 43rd GST Council meeting wherein recommendations was made for notifying changes made in Section 50 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) at the earliest. Following notification has been issued in this regard:
The CBIC vide Notification No. 16/2021- Central Tax dated June 1, 2021 notified changes made vide Section 112 of the Finance Act, 2021 in proviso to Section 50(1) CGST Act payment of interest on net tax liability retrospectively w.e.f. July 1, 2017.
4. Time limit for completion of various actions falling during April 15 to June 29, 2021, extended up to June 30, 2021
The CBIC vide Notification No. 24/2021- Central Tax dated June 01, 2021 has sought to extend due date of compliance which falls during the period from “April 15, 2021 to June 29, 2021” till June 30, 2021. In view of the second wave of COVID 19 pandemic, it has been notified as under – where, any time limit for completion or compliance of any action, by any authority or by any person, has been specified in, or prescribed or notified under the CGST Act, which falls during the period from the April 15, 2021 to June 29, 2021, the time limit for completion or compliance of such action, shall be extended up to the June 30, 2021, including for the purposes of –
a. completion of any proceeding or passing of any order or issuance of any notice, intimation, notification, sanction or approval or such other action, by whatever name called, by any authority, commission or tribunal, by whatever name called, under the provisions of the CGST Law; or
b. filing of any appeal, reply or application or furnishing of any report, document, return, statement or such other record, by whatever name called, under the provisions of the CGST Law;
but, such extension of time shall not be applicable for the compliances of the provisions of the CGST Act, as mentioned below –
a. Chapter IV-- Time and Value of supplyb. Section 10(3), Sections 25 i.e., Procedure for Registration, Section 27 i.e. Special provisions relating to casual taxable person and non-resident taxable person, Section 31 i.e. Tax Invoice, Section 37 i.e. Furnishing of details of Outward Supplies, Section 47 i.e. Levy of Late Fees, Section 50 i.e. Interest on delayed payment of Tax, Section 69 i.e., Power to Arrest, Section 90 i.e. Liability of partner of firm to pay tax, Section 122 i.e. Penalty of certain offences, Section 129 i.e. Detention, seizure and release of goods and conveyances in transit
c. Section 39 i.e., Furnishing of Returns, except sub-section (3), (4) and (5).
d. Section 68 i.e., Inspection of goods in movement, in so far as e-way bill is concerned; and
e. rules made under the provisions specified at clause (a) to (d) above;
5. Extended the due date for verification and approval of the registration application falling between May 01, 2021 to June 30, 2021 up to July 15, 2021
The CBIC vide Notification No. 24/2021- Central Tax dated June 01, 2021 amended the above notification to extend due date for the purpose of verification of the registration application and approval under Rule 9 of the CGST Rules falls during the period of from May 01, 2021 to June 30, 2021, then, the time limit for the same has been extended up to July 15, 2021.
The Notification shall come into force with effect from May 30, 2021.
6. Extended the time limit for issuing order in Form RFD-06 falling between April 15, 2021 to June 29, 2021
The CBIC vide Notification No. 24/2021- Central Tax dated June 01, 2021 amended the above notification to state that where the notice has been issued for rejection of refund claim (in part or full) and the time limit for issuance of order under Section 54(5) and (7) of the CGST Act falls during the period of from April 15, 2021 to June 29, 2021 then the time limit for issuance of order shall be extended to the later of:
a. 15 days after the receipt of reply to the notice from the registered person or
b. June 30, 2021
The Notification shall come into force with effect from May 30, 2021.
7. Allowed landowner-promoter to use ITC of tax charged by the developer-promoter for payment of tax on apartments
The CBIC vide Notification No. 02/2021- Central Tax (Rate) dated June 02, 2021 to amend Notification No. 11/2017- Central Tax (Rate) dated June 02, 2021 (“Services Rate Notification”) to make following changes:
Inserted Explanation (iii) in conditions column of serial number 3 (i.e., Heading 9954 (Construction services)) of the Services Rate Notification against items against items (i), (ia), (ib), (ic) and (id), namely:
“(iii) the landowner-promoter shall be eligible to utilise the credit of tax charged to him by the developer promoter for payment of tax on apartments supplied by the landowner-promoter in such project”
This notification shall come into force with effect from June 2, 2021
8. Clarified time of payment of GST on construction services pursuant to recommendation of 43rd GST Council meeting
The CBIC vide Notification No. 03/2021- Central Tax (Rate) dated June 02, 2021 to amend Notification No. 6/2019- Central Tax (Rate) dated March 29, 2019 which notified person liable to pay GST on development rights, FSI etc. as under:
• Substituted “in whose case the liability to”, the words “, who shall”
• Substituted “shall arise on the date of issuance of completion certificate for the project, where required, by the competent authority or on its first occupation, whichever is earlier”, the words “in a tax period not later than the tax period in which the date of issuance of the completion certificate for the project, where required, by the competent authority, or the date of its first occupation, whichever is earlier, falls”
This notification shall come into force with effect from June 2, 2021.
Income Tax
1. Features of new e-filing portal launched by Income Tax Department
The Income Tax Department is launching its new e-filing portal www.incometax.gov.in on June 7, 2021. The new e-filing portal is aimed at providing taxpayer convenience and a modern, seamless experience to taxpayers. Some of the highlights of the new portal are detailed hereunder:
• New taxpayer friendly portal integrated with immediate processing of Income Tax Returns (ITRs) to issue quick refunds to taxpayers;
• All interactions and uploads or pending actions will be displayed on a single dashboard for follow-up action by taxpayer;
• Free of cost ITR preparation software available with interactive questions to help taxpayers for ITRs 1, 4 (online and offline) and ITR 2 (offline) to begin with; Facility for preparation of ITRs 3, 5, 6, 7 will be made available shortly;
• Taxpayers will be able to proactively update their profile to provide certain details of income including salary, house property, business/profession which will be used in pre-filling their ITR. Detailed enablement of pre-filling with salary income, interest, dividend and capital gains will be available after TDS and SFT statements are uploaded (due date is June 30, 2021);
• New call center for taxpayer assistance for promt response to taxpayer queries. Detailed FAQs, User Manuals, Videos and chatbot/live agent also provided;
• Functionalities for filing Income Tax Forms, Add tax professionals, Submit responses to Notices in
• Faceless Scrutiny or Appeals would be available.
It is clarified that the new tax payment system will be launched on June 18, 2021 after the advance tax instalment date to avoid any taxpayer inconvenience. The mobile app will also be released subsequent to the initial launch of the portal, to enable taxpayers to get familiar with the various features. Familiarization with the new system may take some time, so, the Department requests the patience of all taxpayers/stakeholders for the initial period after the launch of the new portal and while other functionalities get released since this is a major transition. This is another initiative by CBDT towards providing ease of compliance to its taxpayers and other stakeholders.
2. Income tax payers and professional to re-registered their DSC on the new Income Tax Portal
A Digital Signature Certificate (DSC) is the electronic format of physical or paper certificate that serves as a proof of identity of an individual. It Is an easy and hassle-free process to file the IT return using the Digital Signature. This is also considered a secure way to file the Income-Tax Return (ITR).
Digital Signature is mandatory in following cases when dealing with Income Tax Portal:
• E-filing income tax returns in case of every registered trust, partnership firm, companies, any other entity or individual who is required to get tax audit under the Income Tax Act.
• Company filings with MCA21( Ministry of Corporate Affairs)
• Filing of tenders and e-procurement on government website through Class III DSC. MCA has mandated digital signatures for the following individuals:
o Directors
o Auditors
o Company Secretaries - Whether in practice or in job
o Bank Officials - for Registration and Satisfaction of Charges
o Other Authorized Signatories
Please ensure that you re-register your current valid DSC on the new e-filing portal
https://www.incometax.gov.In from June 7th onwards.
The earlier DSC registration on the old portal cannot be migrated due to security and technical reasons.
3. Instructions w.r.t. filing Income Tax Return Forms for FY 2020-21
The Central Board of Direct Taxes (CBDT) has issued instructions w.r.t. filling Income Tax Return (ITR) Forms ITR-1 SAHAJ, ITR-2, ITR-3 ITR-4, ITR-5, ITR-6, and ITR-7, for the Assessment Year 2021‐22 relating to the Financial Year 2020‐21.
FEMA
FEMA Regulations on ESOPs by a Foreign Company or an Indian Company
ESOPs (Employee Stock Options) are considered as one of the effective incentivizing tool by companies to retain,
reward and motivate employees while conserving cash resources for the company. ESOPs are said to induce
ownership behavior in employees by making them partners in growth and has thus encouraged employees to join
start-ups or companies on the high growth curve.
ESOPs can be offered by a private, unlisted public company or listed company. ESOP provisions are governed by
SEBI Regulations in case of a listed company and by the Companies Act, 2013, in case of an unlisted company.
Employee Stock Option Plans (ESOP) are a right given to the employee, and there is no compulsion on the employee
to acquire shares of a company. ESOP is a right given to an employee to acquire a specified number of shares of
the company, over a certain period of time, at a predetermined price.
Before we understand the RBI regulations with respect to ESOP, let us understand some basic terminologies used with respect to ESOP:
Letter of Grant: It is a document issued to the employee which contains the commitment made by a Company to its employee intimating his/her eligibility under the scheme. Date of agreement, between the employer and employee to give an option to employee at a later date, is called as Letter of Grant
Vesting Period: It is the specified period the employee has to wait to get the right to own the shares of the Company as mentioned in the Letter of Grant. Vesting period is the time between grant date and vesting date.
Exercise: It is the act of an employee choosing to buy the shares of the company that he is entitled for. The employee is allocated shares of the company by paying the exercise price.
Once the shares are vested , the employee has a right to buy the shares within specified period of time and such specified time period is called Exercise Period. The date on which an employee exercises the option is called as Exercise Date and the price at which an employee exercises the option is called Exercised Price .
Foreign Exchange Management Act, 1999 (FEMA) and its Regulations on ESOP by Foreign Company to Person Resident in India (PRI)
Person Resident in India (PRI), working either for Foreign Company or for an Indian Company having Overseas
JV/WOS, are permitted to have ESOP of such Foreign Company/Overseas JV/WOS subject to the following
conditions:
(a) General permission is given by RBI to a PRI acquire shares under cashless ESOP provided it
should not involve any remittance from India;
(b) Authorized Dealer (AD) banks allow remittances for purchase of shares offered to PRI under
ESOP by foreign company, provided
ESOP Scheme is offered globally on uniform basis by Issuing Company, and
Indian Company has submitted Annual Return to RBI providing the details of remittances/
beneficiaries, etc.
(c) PRI can also exercise shares under ESOP by making remittance under LRS, subject to limit
of USD 250,000 per financial year, provided sales proceeds of shares should be repatriated to
India.
In all other cases, RBI approval is required.
PRI must ensure repatriation, of sale proceeds to India, immediately on receipt of funds and in any case not later
than 90 days from the date of sale of such securities abroad
ESOP by an Indian Company to PROI (Person Resident Outside India)
Rule 8 of Foreign Exchange Management (Non-debt Instruments) Rules, 2019 consists of relevant provision. An Indian company may issue ESOP to Person Resident Outside India (PROI), employees/directors of its own/its holding company/JV/WOS, provided
(a) ESOP scheme is drawn under SEBI Act 1992 or Companies (Share Capital and Debentures)
Rules, 2014;
(b) Issue of shares under ESOP should be in compliance with sectoral cap ;
(c) If company operates in sector that falls under approval route for Foreign Investment, then prior
government approval is required for issue of shares under ESOP
Issue of shares by Indian Company to a citizen of Bangladesh/Pakistan requires prior government approval.
Change in Status and Non-Repatriation: A person who has got the option when he was PRI but became PROI at
the time of exercising option, will hold such shares on non-repatriation basis.
Compliance: Indian Companies, offering ESOP to any PROI, have to submit Form ESOP within 30 days from the
grant date and also at the time of exercise of right by employee.
Sale proceeds of such shares by PROI can be repatriated provided relevant taxes are paid as per Income Tax Act,
1961.
ESOP to Expats (Foreign Nationals) working in India by an Indian Company
Indian Company can issue shares to its employees/directors. Expats (Foreign National) working in India are treated as Resident under definition 2(v) of the FEMA 1999. There is special dispensation for remittance of salaries by foreign national working in India under Foreign Exchange Management (Current Account Transactions) Amendment Rules 2015.
Employees on Deputation:
Foreign Citizen (other than Pakistan) or Indian Citizen on deputation to Office/ Subsidiary/ JV of foreign company
in India, may make remittance up to his net salary (net of taxes/ Provident Fund/ other deductions), if he is in India
for
a) Employment or deputation of a specified duration (irrespective of length) or
b) Deputation for a specific job or assignments up-to 3 years
Above employees are categorized as resident but not ordinary resident (RNOR) and are allowed to remit 100% of their net salaries.
For example, in case of an expat (RNOR) working for an Indian Listed Company, if has exercised ESOP by making the payment from his resident bank account (Salary Account), there is no approval required at the time of sale of such shares on recognized stock exchange.
Repatriation of Sale Proceeds of ESOP acquired in India, to outside India:
PRI: A PRI is permitted to make remittance under LRS to the extent of USD 250,000 per FY, without any approval. Any remittance by PRI beyond this limit is subject to RBI approval.
RNOR: A RNOR, under FEMA, is allowed to remit 100% net salary. Portion of the sale proceeds of ESOP considered as perquisite on which TDS is deducted by employer, such "Perquisite plus Exercised Value" should be allowed to remit without any approval as it technically forms part of Compensation Structure of an employee.
It's apparent from the Current Account Rules that Central Government and RBI's intent is to allow repatriation of 100% of Remuneration of RNOR subject to taxes and other deductions. However, some AD bankers insists on RBI approval and some others allow remittance based on an undertaking from the Company that ESOP forms part of the Compensation Structure of an employee, to pass the criteria of Net Salaries remittances that are allowed by RBI.
Companies Act 2013
Annual Return
Every Company whether a small company, listed or unlisted according to Section 92 of the Companies Act, 2013, shall prepare a return called Annual Return in a prescribed form, containing certain specified particulars as at the end of every financial year.
Prescribed form:
Until Financial year 2019-20, the prescribed form for all companies to prepare and file their annual returns was MGT-7 . From Financial year 2020-21 onwards, every company except One Person Company and small company shall prepare and file the form MGT-7 and the One Person Company and small company shall use the form MGT-7A to prepare and file their annual return.
Particulars of the Annual Return:
An annual return should disclose particulars as at the end of the financial year regarding the following:
(1) Its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
(2) Its shares, debentures and other securities and shareholding pattern;
(3) Its members and debenture-holders along with changes therein since the close of the previous financial year;
(4) Its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year;
(5) Meetings of members or a class thereof, Board and its various committees along with attendance details;
(6) Remuneration of directors and key managerial personnel;
(7) Penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;
(8) Matters relating to certification of compliances, disclosures as may be prescribed;
And such other details as may be prescribed from time to time.
Signing and Certification:
The form prepared by the Company shall be signed by a director and a Company secretary and where a company does not have a full time company secretary; it shall be signed by a company secretary in practice.
In case of One person company and Small Company, it shall be signed by the director alone where there is no company secretary.
In case of a listed company or a company having paid up capital of more than Rs.10 Crore rupees or having turnover of more than Rs.50 crores, apart from signing the annual return, the annual return shall also be certified by a company secretary in practice in Form MGT-8 stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act.
Significant Amendment:
Every company shall place a copy of the annual return in the website of the company where available, and the web-link of such annual return shall be disclosed in the board’s report.
Prior to this amendment there was a requirement to attach only an extract of the annual return in form MGT-9 to the Board’s report. Since the copy of the annual return itself shall be made available in the website of the Company, there is no requirement to separately attach a form MGT 9 to the Board’s report. Instead, it shall provide only the link of the website through which the annual return can be accessed.
Post this significant amendment brought in by the department, every company shall make sure that prior to conducting the meeting of the board and preparation of board’s report, the annual return is prepared, signed and a copy is made available in the website of the Company so that the web-link shall be included in the Board’s report.
Filing:
The Company shall file the annual return with the registrar within 60 days from the date on which the annual general meeting is held or the date on which the annual general meeting should have been held along with a statement explaining the reasons for not holding the annual general meeting with payment of prescribed fees and additional fees if any.
Penalty for non-filing:
Where the company fails to file the return within the specified period, the Company and every officer in default shall be liable to a penalty of ten thousand rupees and in case of continuous failure, with further penalty of Rs.100 per day for each day during which the failure continues subject to a maximum penalty of Rs. 2 lakhs in case of the company and Rs.50000 in case of an officer in default.
If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder, he shall be liable to a penalty of two lakh rupees.
Taxation
SECTION 194 Q
AN UNDERSTANDING
·A new section introduced which will come into effect from 1st of July 2021.
BUYER OF GOODS WHOSE TURNOVER EXCEEDS 10CR IN FY 20-21
Deduction of TDS @ 0.1% for purchase of goods exceeding Rs.50
Lakhs in a financial year. If PAN not available TDS should be @ 5%.
Not applicable on import purchases. Seller should be a resident
of India
·If TDS under 194Q applies, then TCS u/s 206C(1H) will not apply.
| Scenario | Purchase before 01/07/2021 | Purchase on or after 01/07/2021 | Amount on which TDS shall apply |
|---|---|---|---|
| A | 80L | 20L | 20L |
| B | 30L | 40L | 20L |
| C | 80L | - | - |
| D | - | 75L | 25L |
In Scenario A, since the threshold limit of Rs. 50 Lacs has crossed before the effective date of implementation of this section, hence provisions shall apply on all transactions effected on or after the effective date.
| Turnover for FY 20-21 | Transaction value | Applying Section | Amount on which 0.1% shall apply | ||
|---|---|---|---|---|---|
| Buyer | Seller | Upto 01/07/2021 | On or after 01/07/2021 | ||
| 3Cr | 2Cr | 30L | 70L | NA | NIL |
| 7Cr | 20Cr | 30L | 70L | 206C(1H) | 50L |
| 7Cr | 20Cr | 70L | 30L | 206C(1H) | 50L |
| 20Cr | 7Cr | 30L | 70L | 194-Q | 50L |
| 20Cr | 20Cr | 30L | 70L | 194-Q | 50L |
| 20Cr | 20Cr | 70L | 70L | 206C(1H) 194-Q |
20L 70L |
| 20Cr | 20Cr | 30L | 30L | 194-Q | 10L |
| 20Cr | 20Cr | 30L | NIL | NA | NIL |
| 20Cr | 20Cr | 70L | NIL | 206C(1H) | 20L |
| 20Cr | 20Cr | NIL | 70L | 194-Q | 20L |
TRENDING TOPIC
GST on Slump Sale – Synopsis
As setting up business in India involves multiple compliances and formalities to be undertaken with regard to incorporation and taxation, the concept of Mergers and acquisition & Corporate restructuring has come into light. Generally, the primary objective of undertaking restructuring/rearrangement is technology upgrade, increasing revenues, capturing market share, reducing capital risks and costs etc.
In this article let us understand what is slump sale and the GST implications on the same.
Slump Sale
Slump Sale has not been defined in GST law. Hence the definition of slump sale as per section 50B read with section 2(42) of Income Tax 1961 is as follows:
“Slump sale” means transfer of a whole or part of business as a going concern in which all the assets and liabilities of a business are transferred to a purchaser for a lump-sum consideration without assigning values to the individual assets and liabilities.
So, the following are the features of slump sale:
a) Transfer of whole or part of the undertaking
b) As a going concern
c) For lump sum consideration
d) without assigning values to the individual assets and liabilities
Whether Slump Sale is “Supply” under GST
“Supply” includes, all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
The term 'supply' includes all forms of supply of goods or services such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
Supply of Goods or service
a) ‘Goods’ as defined under the GST law means 'every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply'
b) Slump sale per se does not fall under the aforementioned definition of 'goods' since slump sale includes transfer of both assets and liabilities of an undertaking and not just goods lying in the business.
c) Also, transfer of business as going concern has been specifically excluded from the meaning of goods vide Entry 4 of Schedule II to the Act which deals with classification of any transaction as supply of goods or service.
d) 'Service' on the other hand has been defined under the GST law as 'anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination to another form, currency or denomination for which a separate consideration is charged'.
e) The definition of 'service' under GST is very wide and covers anything other than goods. Accordingly, slump sale may fall under the purview of 'service'.
f) Even though the slump sale falls within the purview of GST as supply of services, the same has been exempted vide Notification no 12/2017- Central Tax (Rate) dated 28th June 2017 wherein transfer of business as going concern is specifically exempted from GST.
For a 'consideration'
Under slump sale, transfer is being made up for a lump sum consideration without values being assigned to individual assets and liabilities. Therefore, it may be said that 'consideration' being one of the prerequisites for supply is involved in slump sale.
'In the course or furtherance of business'
The definition of 'business' under the Act includes 'supply or acquisition of goods including capital goods and services in connection with commencement or closure of business.
Accordingly, slump sale may get covered under the definition of 'business' since the same involves commencement of a new area of business for the buyer and closure of part of business for the seller.
Bases on the above legal provisions we shall conclude that Slump Sale fall within the purview of GST as “Supply of Service” and is specifically exempted through notification. Accordingly, while the transaction qualifies to be a supply of service there may not be any GST implication on said transaction.
Valuation of Slump Sale
Determination of value of supply is one of the major areas of consideration. As per section 15 of the CGST Act, the transaction value shall be considered as the value of supply of goods or services provided the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
In case the transaction takes place between distinct/related persons or where the value of the transaction is not ascertainable, then the issue is addressed vide valuation provisions stated under the CGST Rules 2017 (the Rules) ranging from Rule 27 to 33.
For the current transaction in consideration, i.e. slump sale, Rule 28, 30 or 31 can be referred into.
Rule 28 of the CGST Rules prescribes three methodologies for valuation provided the transaction is between distinct or related person. The three methodologies are:
a. open market value of such supply;
b. if the open market value is not available, the value of supply of goods or services of like kind and quality
c. if the value is not determinable under clause (a) or (b), the value as determined by the application of rule 30 or rule 31, in that order
However, it is pertinent to note that computation of open market value in case of slump sale or computing any value by comparing the undertaking/unit with any like kind might not be feasible for any person. Therefore Rule 28 cannot be used for computing the value of supply.
Rule 30 prescribes the method of computing the value of supply by considering 110% of the cost of the goods or provision of services in consideration. Since computing the cost in a slump sale transaction will defeat its sole purpose, Rule 30 cannot be used in computation of value.
Rule 31, being the residuary provision, states that the value shall be computed using any reasonable means but keeping into consideration the principles and general provisions of section 15 of the chapter.
Accordingly, in terms of Rule 31, transaction value i.e., the lumpsum consideration agreed between transferor and transferee may be considered as value of supply of service.
Input Tax Credit
The supplier (Transferor) will be issuing Bill of Supply to Transferee for transfer of business since the transaction is exempted from Tax. Since there is no tax on outward supply, the question of ITC to transferee does not arise. On the other hand, the supplier needs to be mindful of position with respect to reversal of common ITC proportionate to such exempt supply.
Another noteworthy area to look upon is the ITC lying in the books of transferor. Section 18(3) of the Act read with Rule 41 of the Rules prescribes that registered person is allowed to transfer the ITC which remains unutilized in electronic credit ledger to such transferred business.
It has been further stated under the aforesaid provisions that ITC shall be apportioned in the ratio of value of assets of the new unit. In this regard, the transferor also needs to submit certificate of a practicing Chartered Accountant certifying that transfer of business has been done with a specific provision for the transfer of liabilities.
Caution to exercised on determining the case to be slump sale
a) Whether the concept of going concern still holds good in case of slump sale wherein certain assets or liabilities such as debtors, goodwill, creditors etc. have been carved out from the business transfer agreement;
b) What should be the time limit to file Form ITC-02 (Form for transfer of ITC) as the same has not been prescribed under the GST law or rules made thereunder;
c) Whether for the purpose of calculation of reversal of ITC, common ITC availed including common assets lying at the head office by transferor unit or company also needs to be considered;
d) Whether exemptions/ concessions availed under other legislations such as Customs, Foreign Trade Policy, etc. would continue in the hands of transferee or not.
The concept of transfer of business as going concern existed even prior to the introduction of GST and there has been several litigations in and around this subject. In order to remove unwarranted litigation, the government has brought in much needed clarifications with respect to distribution of ITC which has helped many businesses. It would be imperative for business to evaluate every aspect in a transaction meticulously and then decide on the GST Implications over it.