EXAMPLE-127

Steel & Pipes private limited went through a demerger. Steel and Pipes would be demerged into two separate units Steel and Pipes. Sharing ratio of assets among the units is 2:1.

Whether the Input tax credit eligible in this transaction to demerged units and in what manner.

Answer

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.

Thus ITC available would be apportioned in the ratio of 2:1 in steel and pipes unit.                

Manner of apportionment of input tax credit to the new units.

1.                  As per rule 41(Transfer of credit on sale, merger, amalgamation, lease or transfer of a business) of Chapter V of CGST Rules,2017,Transferor shall Furnish details  of sale, merger, demerger, amalgamation etc  & Details  of unutilized  ITC lying in E-credit ledger in FORM GST ITC-02 on common portal  and also submit  Certificate of CA certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for transfer of liabilities.

2.                  The transferees shall, on the Common Portal, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to their electronic credit ledgers.

3.  The inputs and capital goods so transferred shall be duly accounted for by the transferees in their books of account.