If one proprietorship concern is transfering its all stock in hand to new proprietorship concern by way of transfer of business and transfer its fixed assets by way of sale then 1. this transaction is deemed as supply ? 2. if deemed supply then exempted or not ? 3. only part ITC accumulated is transferable as per section 18 of CGST Act ? 4. what if ITC is not available at time of transfer then form ITC-2 is not able to be filled ?

Reply—The transfer of all business assets including stock to the newly formed entity, by virtue of Schedule II of the CGST Act, is deemed to be treated as a supply of services even though the assets (goods) are being transferred. However, if the business is transferred as a going concern and the business of the proprietary concern is carried out by the new entity, then such transfer of business as a going concern is exempt from tax vide Sl.No. 2 in Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

The business of the ceased entity should be carried on as a going concern by the new entity. It is irrelevant if the proprietor is part of the new entity or not.

As per section 18(3) of CGST Act, where there is a change in the constitution of a registered person 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 input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.

If there is no ITC available in credit ledger of transferor, there is no need to file ITC-02.