Unutilized ITC balance of a firm is transferrable to a Private company, in case of merger of a firm with private company.

Facts: In this matter, the applicant M/s Bimal Industries (BMI) is a going concern firm engaged in manufacture and sale of aluminium profiles. The applicant proposes to merge as a going concern with M/s Bimal Aluminium Pvt. Ltd., that consequent to merger the proprietorship firm BMI, shall cease to exist and it’s all present and future assets, liabilities, rights, claims, businesses, etc., shall be taken over by M/s Bimal Aluminium Pvt. Ltd. All future liabilities of GST, as and when arise, shall be met by M/s Bimal Aluminium Pvt. Ltd., in normal course of business.

The applicant submitted that as per Section 18(3) of the CGST Act, 2017 read with Rule 41 of the CGST Rules, 2017, allows the transfer of the input tax credit shown in the account of the applicant as balance of the Electronic Cash Ledger and the Electronic Credit Ledger to the respective ledgers of M/s Bimal Aluminium Pvt. Limited subject to observance of conditions prescribed in Rule 41 of CGST Rules, 2017.

Issue: Whether the input tax credit available in the credit ledger account or cash ledger account of proprietorship firm shall be transferred to the respective credit ledger and cash ledger account of the private limited company, consequent upon merger.

Held: The AAR Haryana stated with reference to Section 18(3) and Rule 41 of the CGST/HGST Rules, 2017, which is as follows;

As per Section 18 (3) of the CGST Act, 2017, which provides that “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 unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.”

Further, as per Rule 41 of the CGST/HGST Rules, 2017, which states that a registered person shall, in the event of sale, merger, de-merger, 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.

Thus, it is evidently clear that there are provisions in the law, where in case of merger, a registered person, by filing Form GST ITC-02, electronically on common portal, can transfer unutilized input tax credit lying in his electronic credit ledger to the transferee. Therefore, the input tax credit available in the credit ledger account the firm shall transferred to the respective credit ledger account of the private limited company, consequent upon merger, subject to the provision of section 18(3) of the CGST Act, 2017 read with rule 41 of the CGST Rules, 2017.

Here it is to be noted that these provisions pertain to transfer of unutilized input tax credit. These provisions are not applicable to unutilized balance lying in electronic cash ledger.

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