Transfer of Business In Case Of Death of Sole propreitore And ITC Transfer

 

          Transfer of Business In Case of Death of Sole proprietor

Today we will discuss about the situation arises after the death of sole proprietor under Goods & Services Tax 2017. There are two situations arise:-

1.       Discontinue the business.

2.       Transfer of business as going concern.

Government has been issue clarification time to time for this concern. Department has been issued circular 69/43/2018 Dated 26.10.2018, Circular 88/07/2019 dated 01.02.2019 And circular 96/15/2019 dated 28.03.2019.

 

 

Let’s start our topic with detailed manner

1.       Discontinue the business :-  If the legal representative is not willing to continue the business than process of discontinue of business has to be done by him but some liabilities under GST law which has to fulfill .

A.      Filling of pending returns :-  All the pending returns for the tax period in which proprietor is died have to filled by legal representative otherwise late fee and penalty will  be leviable.

B.      Cancellation of registration:-  As per Section 29(1) it is clear that proper officer may cancelled the registration on his own motion and if he does not do the same then the legal representative may apply  online through filling online application in form of REG-16.

C.      Payment of tax on stock available:- As per section 29(5) if any registered person whose registration is cancelled shall pay the amount equals to input tax credit taken on stock in hand either in form of finished goods or semi-finished  goods, capital goods and plant & machinery or any output tax payable on such goods, Whichever is higher, Calculated in such manner prescribe in rules. In case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under section 15, whichever is higher.

D.      Liability liable for payment at the time of death:-  Section 93(1)(b) bound the legal representative to discharge the liability of tax, penalty or interest out of the estate of deceased person, whatever has been determined before his death but has remained unpaid or is determined after his death.

2.       Transfer of business to his legal representative:-  If the legal representative does not want to close the business and wants to continue the same then he/she has to apply for a new registration under this act. Followings are the procession which re required:-

A.      Apply for New GST Registration :-  As per Section 22(3) the legal representative has to applied for a new registration on common portal and liable for registration from the date of transfer.

B.      Transfer of input tax credit :-  Section 18(3) of CGST states“Where there is a change in the constitution of a registered person on account of the 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.” Manner of transfer of ITC will be discussed further in this article.

C.      Cancellation of GST registration: - As per Section 29(1) it is clear that proper officer may cancel the registration on his own motion and if he does not do the same then the legal representative may apply online through filling online application in form of REG-16.

D.      Liability On Stock Available: - As we discussed above that all the ITC at the time of transfer of business through ITC-02 and there are also not any closing stock at the time of cancellation due to transfer so no liability in this category.

E.       Outstanding liability at the time of transfer or death of proprietor:- In the second situation two sections of CGST Act 2017 deals with transfer of liability, outstanding in the name of transferor or deceased proprietor, where the business is transferred to the legal heir/legal representative of deceased person and the same is continued by the legal heir or legal representative. i.e section 85 and section 93 of CGST Act, 2017.

Section 85(1) of the CGST Act states that,  Where a taxable person, liable to pay tax under this Act, transfers his business in whole or in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever, the taxable person and the person to whom the business is so transferred shall, jointly and severally, be liable wholly or to the extent of such transfer, to pay the tax, interest or any penalty due from the taxable person upto the time of such transfer, whether such tax, interest or penalty has been determined before such transfer, but has remained unpaid or is determined thereafter.

Section 93(1)(a) of CGST Act, 2017 states that  if a business carried on by the person is continued after his death by his legal representative or any other person, such legal representative or other person, shall be liable to pay tax, interest or penalty due from such person under this Act

 

                          Processor or Manner of transfer of ITC    

Rule 41 of CGST Rules prescribed the manner of transfer of input tax credit from one electronic credit ledger to another electronic credit ledger which is described in simple language as follows:

1. A registered person shall, in the event of a sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of the business for any reason, file 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.

2. The transferor shall also submit a copy of a certificate issued by a practising chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.

3. The transferee shall accept the details so furnished by the transferor at common portal in FORM GST ITC-02 and that unutilized credit shall be credited to his electronic credit ledger of transferee.

4. The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account.

But here it is also noteworthy that this procedure is to be followed if there is any unutilized credit is available in the electronic credit ledger of deceased person. If there is no ITC available in the electronic credit ledger then no need to file form GST ITC-02 by the transferor or transfree.