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2020 ] INTERNAL REORGANISATION OF BUSINESS J67
Goods forming part of the assets of the registered person
Tax to be paid on the goods :
Under Item 4 in Schedule-II to the Act, the goods forming part of
the assets of the registered person are deemed to be supplied im-
mediately prior to cancellation of registration, and therefore GST is
payable on them. The exception to this is transfer of business as a
going concern.
Exception : transfer of business as a going concern
Transfer of business as a going concern is treated as a service, and
exempted from GST under Serial No. 2 of Notification No.
12/2017-C.T. (Rate), as “services by way of transfer of a going con-
cern, as a whole or an independent part thereof.” Transfer of a go-
ing concern means transfer of a running business as a whole, and
comprises comprehensive transfer of immovable property, goods
and transfer of unexecuted orders, employees, goodwill, etc, as
clarified in an advance ruling in the case of Rajshree Foods, reported
as 2018 (13) G.S.T.L. 221 (A.A.R. - GST). The transfer of goods as
part of such a transaction is not considered as a supply of goods.
Input tax credit in balance
Under Section 29 read with Rule 20, input tax credit pertaining to capital
goods, and inputs including inputs contained in semi-finished goods,
must be reversed or paid in cash.
However, there are exceptions to this requirement. Section 18(3) of the
Act provides that the input tax credit will not lapse but can be trans-
ferred in the situations specified therein. Rule 41 of the CGST Rules spec-
ifies the procedure for this.
No explicit provision for closure of a branch
There is no clear and explicit provision for recovery or transfer of input
tax credit upon closure of a branch of the company which has a separate GST
registration.
But, as seen above, each registration is a ‘registered person’ and thereby
a distinct person in GST and is the locus of tax credit and liability. Therefore, it is
necessary to examine the applicability of the provisions under which input tax
credit of a registered person is transferable to another registered person in cases
of reorganisation of business by way of merger, amalgamation and other ar-
rangements. This is discussed below.
Section 18(3) : transfer of business
Section 18(3) of the CGST Act provides for transfer of input tax credit as
follows :
“When 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 unutilised in his electronic credit ledger to such sold,
merged, demerged, amalgamated, leased or transferred business in
such manner as may be prescribed.”

GST LAW TIMES  16th July 2020  25