Transfer of Business Unit as Going Concern: Supply of Service under CGST Act

The Authority determined that the transaction of transferring a business unit as a going concern constitutes a supply of service under the CGST Act, 2017. However, eligibility for exemption under SI. No. 2 of Notification No. 12/2017-Central Tax (Rate) depends on proving the unit is a going concern, which the applicant failed to do in this case.

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Issues involved:
1. Determination of whether the transaction constitutes a supply of goods, services, or both.
2. Assessment of whether the transaction falls under SI. No. 2 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Analysis:
1. The applicant sought an advance ruling on whether the transaction involving the sale of a manufacturing unit, including assets and liabilities, amounts to a supply of goods, services, or both. The applicant intended to sell a fully functional unit with fixed assets, current assets, and liabilities to a new owner. The transaction involved the transfer of the entire business to a new person, indicating continuity of business. The Authority analyzed the definitions under Section 7 of the CGST Act, 2017, and determined that the transfer of a going concern, as in this case, constitutes a supply of service. The transfer of business assets, as per Schedule II, is considered a supply of goods, but when the entire business is transferred as a going concern, it does not amount to a supply of goods. The Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 also specifies that the transfer of a going concern is a service with a nil rate of tax, confirming the Authority's conclusion that the transaction constitutes a supply of service.

2. The second issue raised was whether the transaction falls under SI. No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The notification exempts the payment of Central Tax on the transfer of a going concern, subject to the condition that the transaction involves a going concern. The concept of a going concern involves the transfer of a running business that can be operated independently by the purchaser. The Authority noted that the applicant did not provide conclusive evidence to establish that the transaction involved a going concern, despite asserting that it was an ongoing business with the intention to transfer all assets and liabilities. Without sufficient documentary evidence, the Authority could not confirm that the transaction met the criteria of a going concern. Therefore, the ruling was made based on the lack of concrete proof regarding the going concern status.

In conclusion, the Authority ruled that the transaction of transferring the business as a whole of one of the units of the applicant, in the nature of a going concern, amounts to a supply of service. However, the transaction is only covered under SI. No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 if it is established that the unit is indeed a going concern, which was not conclusively proven in this case.

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