Winding up of Firm - Closing stock - Reg.

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A jewellery partnership firm is winding up and lacks funds to pay partners. The partners have agreed to accept their capital repayment in the form of the firm's jewellery stock. The question is whether GST is payable on this stock when it's distributed as capital drawings, and if the GST department might object. The advice given is that GST is not payable in this scenario, as it's considered a distribution of capital rather than a sale, and suggests reversing any input tax credit (ITC) on the stock.

J. vijay kumar

J. vijay kumar (Querist)

12 March 2022 Dear Experts,

We are winding up a partnership firm doing jewellery business. The firm is not having money to pay to its partners.
Jewellery stock value : 1.11 Cr. (Business Stock)
Partners capital payable: 1.26 Cr.

The partners are ready to accept payment in goods form (Jewellery Stock).

In such case, it is not sale. It is drawing of capital by Partners in form of goods.

Is GST payable on such closing stock, being given to partners for returning their capital?

Does GST department raise any objection for doing so? (Business stock drawn by partners as drawings)

Please advise.

Best Regards,

Vijay Kumar