Central Tax Circulars

CGST Circular 96/2019

To,

The Principal Chief Commissioners / Chief Commissioners / Principal
Commissioners / Commissioners of Central Tax (All) The Principal Director
Generals / Director Generals (All)

Madam/Sir,

Subject: Clarification in respect of transfer of input tax credit in case of
death of sole proprietor – Reg.

1) Doubts have been raised whether sub-section (3) of section 18 of the Central
Goods and Services Tax Act, 2017 (hereinafter referred to as „CGST Act‟)
provides for transfer of input tax credit which remains unutilized to the
transferee in case of death of the sole proprietor. As per sub-rule (1) of rule
41 of the Central Goods and Services Rules, 2017 (hereinafter referred to as
„CGST Rules‟), the registered person (transferor of business) can 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. Further, clarification has also been sought regarding procedure of
filing of FORM GST ITC-02 in 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 the issues raised as below.

2) Clause (a) of sub-section (1) of section 29 of the CGST Act provides that
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 Act
and 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 sole proprietor if the business is continued by any
person being transferee or successor, the input tax credit which remains
un-utilized in the electronic credit ledger is allowed to be transferred to the
transferee as per provisions and in the manner stated below –

a. Registration liability of the transferee / successor: As per provisions of
sub-section (3) of section 22 of 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 of death of the proprietor: Clause
(a) of subsection (1) of section 29 of the CGST Act, allows the legal heirs in
case of death of sole proprietor of a business, to file application for
cancellation of registration in FORM GST REG-16 electronically on common portal
on account of transfer of business for any reason including death of the
proprietor. In FORM GST REG-16, reason for cancellation is required to be
mentioned as “death of sole proprietor”. The 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.

c. Transfer of input tax credit and liability: 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.
Sub-section (3) of section 18 of the CGST Act, allows the registered person to
transfer the unutilized input tax credit lying in his electronic credit ledger
to the transferee in the manner prescribed in rule 41 of the CGST Rules, where
there is specific provision for transfer of liabilities. As per sub-section (1)
of section 85 of the CGST Act, the transferor and the transferee / successor
shall jointly and severally be 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 93 of the CGST Act
provides that where a person, liable to pay tax, interest or penalty under the
CGST Act, 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 in cases of
transfer of business due to death of sole proprietor.

d. Manner of transfer of credit: As per sub-rule (1) of rule 41 of the CGST
Rules, a registered person shall file FORM GST ITC-02 electronically 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 sole proprietor, the transferee / successor shall file FORM GST ITC-02 in
respect of the registration which is required to be cancelled on account of
death of the sole proprietor. FORM GST ITC-02 is required to be filed by the
transferee/successor before filing the application for cancellation of such
registration. Upon acceptance by the transferee / successor, the un-utilized
input tax credit specified in FORM GST ITC-02 shall 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.