AAR does not apply to the transfer of unused balance in the electronic credit ledger

Fact and issue of the case

M/s SBT Textiles Private Limited, Plot no. 619 and 612 B, Near Narayani Rail, Industrial Area, Urla, Raipur, Chhattisgarh, 492001, the applicant is a private limited company incorporated under the Companies Act, 1956 with registrar of companies and having CIN U00171CT2004PTC016995 and having PAN AAICS9568G and registered under GST in the state of Chhattisgarh vide GSTIN -22AAICS9568G1 ZZ and 22AAICS9568G3ZX, respectively for their two units i.e., Unit-I and Unit-II.

The applicant in their application has stated that by virtue of Section 25(4) of CGST, Act 2017 both the above registration i.e., Unit-I and Unit-II having GSTIN -22AAICS9568G1ZZ and 22AAICS9568G3ZX respectively shall be treated as establishments of distinct persons for the purposes of the CGST Act, 2017 and hence are considered as separate registered person in accordance with Section 2(94) of CGST Act, 2017. Now the company wishes to merge both the above units by transfer all the assets and liabilities of unit-II with unit-I and for this purpose desirous to know whether the unutilized balance of ITC can be transferred from one GSTIN to another, by virtue of section 18(3) of CGST Act, 2017 read with rule 41 of CGST Rules, 2017(as inserted by Notification no. 10/2017-CT dated 28.6.2017. Further that the company is desirous to know about whether the unutilized balance of ITC can be transferred from one GSTIN to the other even without following the process of merger.

Accordingly, the questions on which ruling has been sought by the applicant is as under: –

Whether unutilized balance of E-credit ledger can be transferred on merger of distinct persons as specified in Section 25(4) i.e., on merger of two distinct GSTINs of same PAN within State in terms of section 18(3) of CGST Act, 2017?

Whether unutilized balance of E-credit ledger can be transferred between distinct persons as specified in section 25(4) i.e., from one GSTIN to another GSTIN in same State within same PAN without following the process of merger?

Contentions of the applicant: – The applicant has in the instant application furnished their interpretation of law and / or facts in respect of the aforesaid question(s) which can be summarized as under:

that, as per Section 18(3) of CGST Act,201 7, where there is change in the constitution of a registered persons on account of 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 ITC which remains unutilized in his electronic ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.

That, Rule 41 of CGST Rules, 2017 prescribes the manner of transfer of credit on sale, merger, amalgamation, lease or transfer of a business.

That, as per section 2(94) of CGST Act, 2017 registered person means a person who is registered under section 25 but does not include a person having a Unique Identity number.

That, as per section 25(4) of CGST Act, 2017 a person who has obtained registration whether in one Stale or more than one State shall in respect of such registration be treated as distinct persons for the purpose of this Act.

That, from the concurrent reading of above provisions it can be concluded that where a company has obtained more than one registration in a State for its different businesses under the same PAN, then all such registration will be treated as separate registered person for the purpose of GST and therefore transfer of unutilized balance of ITC from one GST registration to another registration with same PAN should be allowed by virtue of above provisions of Section 18(3) read with Rule 41.

Consequently, on merger (if any) the unutilized balance of E-credit ledger of Unit-II should be allowed to be transferred to Unit-I.

Rule 41A specifically allows transfer of credit on obtaining separate registration for multiple place of business within a State in the ratio of value of assets held by them at the time of registration by filing form ITC-02A.

Further Rule 87(14) as inserted vide Notification no. 14/2022-CT dated 5.7.2022 allows transfer of unutilized balance in CGST and IGST cash ledger between distinct persons as specified in Section 25(4)/25(5) of CGST Act, 2017.

That, by virtue of Rule 87(14), the unutilized balance of E-cash ledger are specifically allowed to be transferred between establishment of distinct persons i.e. establishment having different GSTIN within same PAN even without merger of both the GSTINs.

That, similarly the unutilized balance of E-credit ledger should also be allowed to be transferred between establishment of distinct persons i.e., establishment having different GSTIN within same PAN even without merger of both the GSTINs.

Observation of the court

We find that the applicant in the instant application in form ARA-01 has mentioned that the issue raised by them fall under applicability of a Notification issued under the provision of this Act and also under admissibility of input tax credit of tax paid or deemed to have been paid.

On perusal of the issues raised by the applicant we find that in the instant case there is neither any issue involving applicability of a Notification issued under the provision of Act nor this is a case regarding admissibility of input tax credit of tax paid or deemed to have been paid. Here the issue being raised by the applicant is admissibility of transfer of unutilized balance of Input Tax Credit in E-credit ledger and not regarding the admissibility of Input Tax Credit of tax paid. In other words, in the instant case in hand eligibility/ admissibility or otherwise of such Input Tax Credit is not the issue, as stipulated under Section 97(2)(d).Thus, we come to the considered conclusion that as Section 97(2)(d) specifies about the admissibility of input tax credit of tax paid and not regarding admissibility of transfer of unutilized balance of Input tax credit lying in E-credit ledger, the issues raised by the applicant in the instant ARA01 is out of the scope of advance ruling and accordingly their application merits rejection