Page 68 - GSTL_2nd April 2020_Vol 35_Part 1

C4 GST LAW TIMES [ Vol. 35
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.
3. The issues raised in various representations have been analyzed in
the light of various legal provisions under GST. In order to ensure uniformity in
the implementation of the provisions of the law, the Board, in exercise of its
powers conferred by sub-section (1) of section 168 of the CGST Act clarifies the
issues involved in the Table below.

S. Issue/Question Clarification
No.
a. (i) In case of Proviso to sub-rule (1) of rule 41 of the CGST Rules
demerger, pro- provides for apportionment of the input tax credit in the
viso to rule 41(1) ratio of the value of assets of the new units as specified
of the CGST in the demerger scheme. Further, the explanation to sub-
Rules provides rule (1) of rule 41 of the CGST Rules states that “value of
that the input tax assets” means the value of the entire assets of the
credit shall be business, whether or not input tax credit has been
apportioned in availed thereon. Under the provisions of the CGST Act,
the ratio of the a person/company (having same PAN) is required to
value of assets of obtain separate registration in different States and each
the new units as such registration is considered a distinct person for the
specified in the purpose of the Act. Accordingly, for the purpose of
demerger apportionment of ITC pursuant to a demerger under
scheme. sub-rule (1) of rule 41 of the CGST Rules, the value of
However, it is assets of the new units is to be taken at the State level (at
not clear as to the level of distinct person) and not at the all-India level.
whether the Illustration : A company XYZ is registered in two States
value of assets of of M.P. and U.P. Its total value of assets is worth Rs. 100
the new units is crore, while its assets in State of M.P. and U.P. are Rs. 60
to be considered crore and Rs. 40 crore respectively. It demerges a part of
at State level or its business to company ABC. As a part of such
at all-India level. demerger, assets of XYZ amounting to Rs. 30 Crore are
transferred to company ABC in State of M.P., while
assets amounting to Rs. 10 crore only are transferred to
ABC in State of U.P. (Total assets amounting to Rs. 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.

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