` Circular No.133 03/2020-GST
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F.No. CBEC-20/06/13/2019-GST
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes & Customs
GST Policy Wing
***
New Delhi, dated the 23
rd
March, 2020
To,
The Principal Chief Commissioners/Chief Commissioners/Principal Commissioners/ Commissioners of
Central Tax (All) / The Principal Director Generals/ Director Generals (All)
Madam/Sir,
Sub: Clarification in respect of apportionment of input tax credit (ITC) in cases of business
reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules - reg.
Representations have been received from various taxpayers seeking clarification in respect of
apportionment and transfer of ITC in the event of merger, demerger, amalgamation or change in the
constitution/ownership of business. Certain doubts have been raised regarding the interpretation of sub-
section (3) of section 18 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the
CGST Act) and sub-rule (1) of rule 41of the Central Goods and Services Tax Rules, 2017 (hereinafter
referred to as the CGST Rules) in the context of business reorganization.
2. According to sub-section (3) of section 18 of the CGST Act,
“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
unutilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or
transferred business in such manner as may be prescribed.”
Further, according to sub-rule (1) of rule 41 of the CGST Rules:
“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
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common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit
ledger to the transferee:
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.
No.
Issue / Question Clarification
a. (i) In case of demerger,
proviso to rule 41 (1) of
the CGST Rules provides
that 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. However, it is not
clear as to whether the
value of assets of the new
units is to be considered at
State level or at all-India
level.
Proviso to sub-rule (1) of rule 41 of the CGST Rules provides for
apportionment of the input tax credit in the ratio of the value of assets of
the new units as specified in the demerger scheme. Further, the
explanation to sub-rule (1) of rule 41 of the CGST Rules states that “value
of assets” means the value of the entire assets of the business, whether or
not input tax credit has been availed thereon. Under the provisions of the
CGST Act, a person/ company (having same PAN) is required to obtain
separate registration in different States and each such registration is
considered a distinct person for the purpose of the Act. Accordingly, for
the purpose of apportionment of ITC pursuant to a demerger under sub-
rule (1) of rule 41 of the CGST Rules, the value of assets of the new units
is to be taken at the State level (at the level of distinct person) and not at
the all-India level.
Illustration A company XYZ is registered in two States of M.P. and U.P.
Its total value of assets is worth Rs. 100 crore, while its assets in State of
M.P. and U.P are Rs 60 crore and Rs 40 crore respectively. It demerges a
part of its business to company ABC. As a part of such demerger, assets
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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.
(ii) Is the transferor
required to file FORM
GST ITC – 02 in all
States where it is
registered?
No. The transferor is required to file FORM GST ITC-02 only in those
States where both transferor and transferee are registered.
b. The proviso to rule 41 (1)
of the CGST Rules
explicitly mentions
‘demerger’. Other forms
of business reorganization
where part of business is
hived off or business in
transferred as a going
concern etc. have not been
covered in the said rule.
Wherever business
reorganization results in
partial transfer of business
assets along with
liabilities, whether the
proviso to rule 41(1) of the
CGST Rules, 2017 shall
be applicable to calculate
the amount of transferable
Yes, the formula for apportionment of ITC, as prescribed under proviso to
sub-rule (1) of rule 41 of the CGST Rules, shall be applicable for all
forms of business re-organization that results in partial transfer of business
assets along with liabilities.
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ITC?
c. (i) Whether the ratio of
value of assets, as
prescribed under proviso
to rule 41 (1) of the CGST
Rules, shall be applied in
respect of each of the
heads of input tax credit
viz. CGST/ SGST/ IGST/
Cess?
No, the ratio of value of assets, as prescribed under proviso to sub-rule (1)
of rule 41 of the CGST Rules, shall be applied to the total amount of
unutilized input tax credit (ITC) of the transferor i.e. sum of CGST,
SGST/UTGST and IGST credit. The said formula need not be applied
separately in respect of each heads of ITC (CGST/SGST/IGST). Further,
the said formula shall also be applicable for apportionment of Cess
between the transferor and transferee.
Illustration A: The ITC balances of transferor X in the State of
Maharashtra under CGST, SGST and IGST heads are 5 lakh, 5 lakh and
10 lakh respectively. Pursuant to a scheme of demerger, X transfers 60%
of its assets to transferee B. Accordingly, the amount of ITC to be
transferred from A to B shall be 60% of 20 lakh (total sum of CGST,
SGST and IGST credit) i.e. 12 lakh.
(ii) How to determine the
amount of ITC that is to be
transferred to the
transferee under each tax
head (IGST/CGST/SGST)
while filing of FORM
GST ITC–02 by the
transferor?
The total amount of ITC to be transferred to the transferee (i.e. sum of
CGST, SGST/UTGST and IGST credit) should not exceed the amount of
ITC to be transferred, as determined under sub-rule (1) of rule 41 of the
CGST Rules [refer 3 (c) (i) above]. However, the transferor shall be at
liberty to determine the amount to be transferred under each tax head
(IGST, CGST, SGST/UTGST) within this total amount, subject to the ITC
balance available with the transferor under the concerned tax head. This is
shown in the illustration below:
(1) (2) (3) (4) (5) (6)
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State
Asset
Ratio of
Transfe
ree
Tax
Heads
ITC balance
of Transferor
(pre-
apportionmen
t) as on the
date of filing
FORM GST
ITC–02)
Total
amount of
ITC
transferred
to the
Transferee
under
FORM
GST ITC-
02
ITC balance
of Transferor
(post-
apportionme
nt) after
filing of
FORM GST
ITC–02)
[Col (4) –
Col (5)]
Delhi
70%
CGST 10,00,000 10,00,000 0
SGST 10,00,000 10,00,000 0
IGST 30,00,000 15,00,000 15,00,000
Total 50,00,000 35,00,000 15,00,000
Haryan
a
40%
CGST 25,00,000 3,00,000 22,00,000
SGST 25,00,000 5,00,000 20,00,000
IGST 20,00,000 20,00,000 0
Total 70,00,000 28,00,000 42,00,000
d. (i) In order to calculate the
amount of transferable
ITC, the apportionment
formula under proviso to
rule 41(1) of the CGST
Rules has to be applied to
the unutilized ITC balance
of the transferor.
However, it is not clear as
to which date shall be
relevant to calculate the
According to sub-section (3) of section 18 of the CGST Act, “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 unutilized
in his electronic credit ledger to such sold, merged, demerged,
amalgamated, leased or transferred business in such manner as may be
prescribed.” Further, sub-rule (1) of rule 41 of the CGST Rules prescribes
that the registered person shall file the details in FORM GST ITC-02 for
transfer of unutilized input tax credit lying in his electronic credit ledger
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amount of unutilized ITC
balance of transferor.
to the transferee.
A conjoint reading of sub-section (3) of section 18 of the CGST Act along
with sub-rule (1) of rule 41 of the CGST Rules would imply that the
apportionment formula shall be applied on the ITC balance of the
transferor as available in electronic credit ledger on the date of filing of
FORM GST ITC – 02 by the transferor.
(ii) Which date shall be
relevant to calculate the
ratio of value of assets, as
prescribed in the proviso
to rule 41 (1) of the CGST
Rules, 2017?
According to section 232 (6) of the Companies Act, 2013,
“The scheme under this section shall clearly indicate an appointed date
from which it shall be effective and the scheme shall be deemed to be
effective from such date and not at a date subsequent to the appointed
date”. The said legal provision appears to indicate that the “appointed
date of demerger” is the date from which the scheme for demerger
comes into force and it is specified in the respective scheme of demerger.
Therefore, for the purpose of apportionment of ITC under rule sub-rule
(1) of rule 41 of the CGST Rules, the ratio of the value of assets should
be taken as on the “appointed date of demerger”.
In other words, for the purpose of apportionment of ITC under sub-rule
(1) of rule 41 of the CGST Rules, while the ratio of the value of assets
should be taken as on the “appointed date of demerger”, the said ratio is to
be applied on the ITC balance of the transferor on the date of filing
FORM GST ITC - 02 to calculate the amount to transferable ITC.
4. Difficulty, if any, in implementation of the Circular may be brought to the notice of the Board.
Hindi version would follow.
(Yogendra Garg)
Principal Commissioner
y.garg@nic.in
