In what suggests lack of thorough consideration, Andhra Pradesh AAR has ruled that no GST will apply on the transfer of an entire business by one unit to its sister unit in another state. Accordingly, it has allowed the transfer of Input Tax Credit (ITC) also under the supply of the business unit as a growing concern.
The applicant, M/s Shilpa Medicare Limited, R&D on drugs and pharmaceuticals, wanted to shift its entire base in AP to Karnataka as an ongoing concern. It made an application before the Andhra Pradesh Authority for Advance Rulings (AAR) enquiring on the applicability of GST and exemption on this transaction. Additionally, it also wanted to check out the possibility of transferring its ITC to its sister unit in form ITC-02.
The AP AAR verified the facts and arguments to highlight that the transaction will not fall under Schedule II of the CGST Act. The entry 4(c) of this schedule specifies that if business assets are transferred, it is considered as supply of goods. However, in the present situation, it is the entire business being transferred with capital assets and therefore not a supply of goods. By the definition of ‘service’ under GST, anything not classifiable as ‘goods’ will be termed as service. Hence, the transaction is considered as a supply of service.
Further, the CGST (Rate) notification 12/2017 for exempting various services was referred to conclude that the sale of a business as a going concern is exempt. On the other hand, the authority also looked into the matter of allowing ITC transfer. The transfer of ITC parked under all three heads- CGST, SGST and IGST was approved under Section 18(3) read with rule 41 of CGST Act, provided it is unutilised. Form ITC-02 must be filed consisting of necessary details of such transfer.
The peculiarity of the ruling is that the sale transaction is happening between two different states with different revenue coffers. Moreover, ITC implications have not been critically examined. Although several ARs have been issued in the past on similar matters, none of them involved interstate effects and between sister units. The unutilised ITC under the SGST that belonged to one state must be transferred to another state. While an interstate transfer of ITC under SGST by an input service distributor would have been as IGST, it is still a grey area in this case.
In the recent CGST circular number 133 03/2020 dated 23rd March 2020, it was clarified that the transferor must file form ITC-02 in both the states where transferor and transferee are registered. No clear outline has been given on this so far. Moreover, a CA certification is required to attest that the provisions are followed. It increases the compliance burden of the taxpayer.
Moreover, the transaction is happening between two GSTINs under the same PAN. This setup of business reorganisation could give rise to GST registration complications for the transferee as well. An unbiased view could have been delivered had there been a central AAR to review the matter involving interstate transactions. Till then, we can hope that any forthcoming rulings give better clarity on this specific issue.
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Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.