Doubts have been raised whether sub-section (3) of section 18 of the Central Goods and Services TaxAct, 2017(hereinafter referred to as „CGST Act?) provides for transfer ofinput tax credit which remains unutilized to the transferee incase of death of the sole proprietor. As per sub-rule(1)of rule 41of the Central Goods and Services Rules, 2017 (hereinafter referredtoas „CGST Rules?), the registered person (transferorof business)can file FORM GST ITC-02electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee. Further, clarification has also been sought regarding procedure of filing of FORM GST ITC-02in case of death of the sole proprietor.In order to clarify these issues and to ensure uniformity in the implementation of the provisions of the law, the Board, in exercise of its powers conferred by section 168 (1) of the CGST Act, hereby clarifies theissues raised asbelow.

2. Clause (a) of sub-section (1) of section29of the CGST Actprovidesthat reason of transfer of business includes“death of the proprietor”. Similarly, for uniformity and for the purpose of sub-section (3) of section 18, sub-section (3) of section 22, sub-section (1) of section 85 of the CGST Actand sub-rule (1) of rule 41 of the CGST Rules, it is clarified 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.

3. In case of death of soleproprietor if the business is continued by any person being transferee or successor,the input tax credit which remains un-utilizedin theelectronic credit ledger is allowed to be transferred to the transferee as per provisions andin themanner stated below–

a. Registration liability of the transferee/successor: As per provisions of sub-section (3) of section 22of the CGST Act,the transferee or the successor, as the case may be, shall 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. While filing application in FORM GST REG-01 electronically in the common portal the applicant is required to mention the reason to obtain registration as “death of the proprietor”.

b. Cancellation of registration on account ofdeath of the proprietor:Clause (a) of sub-section (1) of section29of the CGST Act,allows the legal heirs in case of death of soleproprietor of a business,tofile application for cancellation of registration in FORMGST REG-16electronically on common portal on account oftransfer of business for any reason including death of the proprietor.In FORMGST REG-16,reason for cancellation is required tobementionedas “death of sole proprietor”. The GSTIN of transferee to whom the business has been transferred is also required to be mentionedto link the GSTIN of the transferor with the GSTIN of transferee.

c. Transfer of input tax credit and liability:In case of death of soleproprietor,if the business is continued by any person being transferee or successor of business, itshall be construedas transferof business.Sub-section(3) of section 18of the CGST Act,allowsthe registered person to transfer theunutilizedinput tax credit lyingin his electronic credit ledger to the transferee inthe manner prescribed in rule 41of the CGST Rules, where there isspecific provision for transfer of liabilities. As per sub-section (1) of section 85of the CGST Act, the transferor and the transferee / successor shall jointly and severallybe liable to pay any tax, interest or any penalty due from the transferor in cases of transfer of business “in whole or in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever”. Furthermore, sub-section(1) of section 93of the CGST Actprovides that where a person, liable to pay tax, interest or penalty under the CGSTAct, dies, then the person who continues business after his death, shall be liable to pay tax, interest or penalty due from such person under this Act.It is therefore clarified that the transferee / successor shall be liable to pay any tax, interest or any penalty due from the transferor incases of transfer of business due to death of soleproprietor.

d. Manner of transfer of credit:As per sub-rule (1) of rule 41of the CGST Rules,a registered person shall file FORM GST ITC-02electronically on the common portal with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason.In case of transfer of business on account of death of soleproprietor,the transferee / successor shall file FORM GST ITC-02in respect of the registration which is required to be cancelled on account of death of the sole proprietor. FORM GST ITC-02is required to be filed by the transferee/successor beforefiling the application for cancellation of such registration. Upon acceptance by the transferee / successor,the un-utilizedinput tax credit specified in FORM GST ITC-02shall be credited to his electronic credit ledger.

4. It is requested that suitable trade notices may be issued to publicize the contents of this circular.

5. Difficulty if any, in the implementation of this Circular may be brought to the notice of the Board. Hindi version would follow.
 

(Upender Gupta)
Principal Commissioner (GST)

F. No. CBEC-20/16/04/2018 –GST