Provide for Transfer of GST ITC on shifting of factory from one State to another : ICAI – GST Rules Issue 22

By | May 10, 2017
(Last Updated On: May 10, 2017)

Input tax credit (ITC) on shifting of factory from one State to another

 

A manufacturer having factory in West Bengal is discharging central excise duty and VAT/CST, as applicable, while clearing the goods manufactured at the said factory. He is intending to shift the entire factory set up to a new site in Maharashtra. Entire stock in process and finished goods and capital goods would also be transferred to the said location in Maharashtra.

Present Indirect Tax implications – The said manufacturer will be able to transfer the entire amount of unutilised CENVAT credit balances to the new site at Maharashtra in terms of Rule 10(1) of the CENVAT Credit Rules, 2004 (‘CCR 2004’). In so far as the accumulated VAT ITC is concerned, he can claim refund in the quarterly returns filed in normal course.

Situation in Proposed GST regimeClause 18(3) of the CGST Act, 2017 read with Rule 6 of the draft GST Input Tax Credit Rules, proposes to allow transfer of ITC only in case of change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of business with the specific provision for transfer of liabilities.[ Read Draft GST ITC Rules ]

Issue

No provision as on date appears to take care of a situation where the manufacturer, in the proposed GST regime, merely shifts his factory from one State to another. In case of shifting of factory, there is no change in the constitution of the said manufacturer (registered person) on account of sale, merger, demerger, amalgamation, lease or transfer of business. The question of provision for transfer of liability would also not arise.

The present CCR 2004 allows transfer of accumulated CENVAT Credit balances in both the situations –

(1) when there is mere physical shifting of factory from one place to another place and

(2) when there is a change in the constitution of the manufacturer on account of sale, merger, demerger, amalgamation, lease or transfer of business with the specific provision for transfer of liabilities.

The said transfer of accumulated credit balance is allowed even if the credit balance does not exactly correspond to the actual stock of finished goods or WIP or capital goods. The said transfer of accumulated credit balance is permissible if the available stock of finished goods or WIP and capital goods lying in the factory are transferred to the new site.

Ideally, the manufacturer should be allowed to transfer the accumulated Credit balances of CGST or IGST in the above situation. It appears that there is inadvertent omission in the draft provision to care of the situation stated above.

Suggestion

It is suggested to provide for transfer of unutilised input tax credit balance, under Clause 18(3), in case the registered person shifts his factory to another State, in the electronic credit ledger of the registered person having the same permanent account number.

Source ICAI Suggestions on GST Rules Submitted to Govt of India

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