GST UPDATE ON PRACTICAL DIFFICULTY IN CHANGE IN CONSTITUTION OF FIRM REGISTERED UNDER GST

GST UPDATE ON PRACTICAL DIFFICULTY IN CHANGE IN CONSTITUTION OF FIRM REGISTERED UNDER GST:-
As we all know that the introduction of provision restricting the input tax credit which is not reflected in GSTR-2A to the extent of 10% of the eligible credit available in respect of invoices uploaded by the suppliers is cumbersome and tedious for the assessees. The assessees are finding it practically impossible to keep track record of the invoices and reconciling the same with GSTR-2A and many of them are foregoing their option to avail additional 10% of the input tax credit and are simply availing the input tax credit reflected in their GSTR-2A. Apart from the tedious compliance mechanism, another practical difficulty is being faced by the assessees on account of implementation of this provision restricting the credit availment to the extent of 10%.

M/s ABC is a proprietorship firm registered in GST Laws and wishes to change the constitution of the firm as partnership firm namely M/s XYZ w.e.f. 01.02.2020 resulting into surrender of M/s ABC and new registration of M/s XYZ. Now, the moot question that arises here is that how will M/s ABC transfer its entire input tax credit to the newly constituted partnership firm being M/s XYZ under GST Laws? It is pertinent to mention here that as per section 18(3) of the CGST Act, 2017 read with Rule 41 of the CGST Rules, 2017, when there is change in constitution of a registered person on account of sale, the registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold business by filing FORM GST ITC-02 electronically on the common portal. However, the problem faced by the assessee is that the option to file FORM GST ITC-02 is exercisable only once whereas M/s ABC has having substantial input tax credit which is not being reflected in their GSTR-2A. To illustrate, M/s ABC is having invoices involving input tax credit of Rs. 10,00,000/- for their month of January, 2020 out of which invoices to the extent of Rs 5,00,000/- are being reflected in their GSTR-2A. Consequently, M/s ABC can avail input tax credit in their GSTR-3B for the month of January, 2020 upto maximum amount of Rs. 5,50,000/- (5,00,000+10% of Rs. 5,00,000) and so the input tax credit available in electronic credit ledger of M/s ABC would be Rs. 5,50,000/- inspite of the fact that the amount of input tax credit as per invoices is Rs. 10,00,000/- which should have been credited in their electronic credit ledger to be ultimately transferred to M/s XYZ. However, on account of restriction imposed vide Rule 36(4) of the CGST Rules, 2017, M/s ABC is able to claim input tax credit of Rs. 5,50,000/- in GSTR-3B filed for the month of January, 2020. Moreover, it is very uncertain when will all the input tax credit be reflected in GSTR-2A of M/s ABC. Furthermore, M/s ABC cannot wait for long time for filing ITC-02 as it is to be filed once. There is no provision prescribed in GST Law for dealing with this situation and the only option left with M/s ABC is to avail the entire input tax credit available, i.e., Rs. 10,00,000/- in the GSTR-3B filed for the month of January, 2020 and transfer the same to newly constituted firm M/s XYZ effective from 01.02.2020. Also, M/s ABC will continue its old registration under GST until the entire input tax credit is reflected in its GSTR-2A. This will in turn increase the compliance cost for M/s ABC of filing GST returns till the registration is finally surrendered.

It is submitted that even after the above course of action is adopted by M/s ABC, the department can raise objection that the input tax credit which is reflected in GSTR-2A of M/s ABC later on cannot be availed and utilised by M/s XYZ in advance. The department may also insist on payment of interest for availment and utilisation of credit beforehand. Well, a suitable clarification from the government is the need of hour so that unwarranted litigation may be avoided.
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GST UPDATE ON PRACTICAL DIFFICULTY IN CHANGE IN CONSTITUTION OF FIRM REGISTERED UNDER GST

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