GST Authority clarifies on change/transfer in ownership of sole proprietorship

Our Bureau New Delhi | Updated on March 28, 2019 Published on March 28, 2019

Mechanism to transfer unutilised input tax credit, liabilities specified

The GST (Goods & Services Tax) Authority on Thursday made it clear that transfer or change in the ownership of business will include transfer or change in the ownership of business due to death of the sole proprietor. Accordingly, a mechanism has been specified for transferring unutilised input tax credit.

A circular issued by the Central Board of Indirect Taxes and Customs (CBIC) mentioned that the transferee or the successor, will be liable to be registered with effect from the date of such transfer or succession, where a business is transferred to another person for any reasons, including death of the proprietor. Here the applicant will be required to mention the reason to obtain registration as ‘death of the proprietor,’ in the registration form (GST REG-01) to be filed electronically in the common portal.

The legal hire (of the dead sole proprietor) will be required to give application for cancellation of the existing registration. The GST Identification Number (GSTIN) of transferee to whom the business has been transferred is also required to be mentioned to link the GSTIN of the transferor with the GSTIN of transferee. In case of death of sole proprietor, if the business is continued by any person being transferee or successor of business, it shall be construed as transfer of business. This means transfer of unutilised input tax credit and liability to pay tax along with penalty, if any, will also be possible.

In case of transfer of business on account of death of sole proprietor, the transferee / successor will file ‘FORM GST ITC-02’ in respect of the registration to be cancelled. Also, such an action is required to be completed before applying for the cancellation. This should be filed before filing the application for cancellation of such registration. Upon acceptance by the transferee/ successor, the unutilised input tax credit specified in ‘FORM GST ITC-02’ will be credited to his electronic credit ledger.

New registration

In another circular related to verification of applications for grant of new registration, the CBIC said there have been instances when registration gets cancelled due to one reason or any other reason, such businesses prefer to apply for new registration rather than applying for revocation of cancellation of registration. There is possibility that such person might not have furnished requisite returns and not paid tax for the tax periods covered under the old/cancelled registration.

Further, such persons would be required to pay all liabilities due from them for the relevant period in case they apply for revocation of cancellation of registration. Hence, to avoid payment of the tax liabilities, such persons may be using the route of applying for fresh registration. One can take separate registration on the same PAN in the same State.

Now, CBIC has instructed its officer to exercise due caution while processing such applications. It is clarified that not applying for revocation of cancellation of registration will be deemed to be a ‘deficiency’ and could be reason for rejection of application for new registration.

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Published on March 28, 2019
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