2021 (8) TMI 523 - AAR - GST

Exemption Denied: Business Transfer Excluding Liabilities Not Considered 'Going Concern'

The Authority ruled that the exemption under SI.No.2 of Notification No.12/2017-Central Tax (Rate) dated June 28th, 2017, for 'Services by way of transfer ... Exemption form GST on the business transfer undertaken - Services by way of transfer of a going concern as a whole or an independent part thereof - SI.No.2 of the N/N.12/2017 - Central Tax (Rate) dated June 28th, 2017 - HELD THAT:- It is noticed that the applicant's Business as MSO sought to be sold is in functioning state and the transaction by virtue of the Business Transfer Agreement contemplates the sale of business to the purchaser, except any of the employees or liabilities and the purchaser intends to continue the same business - The term 'going concern' is defined nowhere in the CGST Act. Hence, the term is taken in its common parlance as used in trade. The running business, when sold in its entirety or a branch of the business, it is considered a going concern in lock, stock and barrel. Going concern is not included in the GAAP (Generally Accepted Accounting Principles) but included in the GAAS (Generally Accepted Auditing Standards). Accounting standards determine what a company disclose on its financial statements if there are doubts about it's ability to continue as a going concern. Conditions that lead to substantial doubt about going concern include the following like negative trends in operating results, continuous losses from one period to next, loan defaults, lawsuit against a company, and denial of credit by suppliers. Moreover, transfer of a going concern means transfer of a running business which is capable of being carried on by the purchaser as an independent business. Such transfer of business as a whole will comprise comprehensive transfer of immovable property, goods and transfer of unexecuted orders, employees, goodwill etc., The transaction of 'transfer of business' in the instant case does not fit in the definition of a 'going concern' in the context of exclusion of liabilities - the entry at serial No.2 of the chapter 99 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 prescribing the rate of tax for 'the services by way of transfer of a going concern as a whole or an independent part there of', as “NIL” rated, is not applicable to the present case. Issues Involved:1. Applicability of SI.No.2 of Notification No.12/2017 - Central Tax (Rate) dated June 28th, 2017, granting exemption to 'Services by way of transfer of a going concern as a whole or an independent part thereof' on the business transfer undertaken by the applicant.Issue-wise Detailed Analysis:1. Applicability of SI.No.2 of Notification No.12/2017 - Central Tax (Rate) dated June 28th, 2017:Applicant's Interpretation of Law and Facts:The applicant, M/s. SCV Sky Vision, engaged in cable operation business, entered into a 'Business Transfer Agreement' (BTA) with M/s. ACN Cable Private Limited to transfer its entire cable operation business, excluding liabilities and employees, as a going concern. The applicant contends that this transfer qualifies as 'Services by way of transfer of a going concern, as a whole or an independent part thereof' under SI.No.2 of Notification No.12/2017-CT (Rate) dated June 28th, 2017, which grants exemption to such services.A. Transfer of Business as Supply of Service:- Section 7 (1)(a) of CGST Act: Defines supply to include all forms of supply of goods or services for a consideration in the course of business. The term 'service' is defined under Section 2(102) as anything other than goods.- Entry No.4 (a) of Schedule II of CGST Act: States that transfer of goods forming part of assets is a supply of goods.- Judicial Precedents: The Madras High Court in Deputy Commissioner (CT) v. K. Behanan Thomas and Andhra Pradesh High Court in Paradise Food Court v. State of Telangana held that transfer of business does not constitute a sale of goods.- Composite Supply: The applicant argues that the transfer of business (Supply 2) and transfer of goods (Supply 1) qualify as 'Composite Supply' under Section 2(30) and Section 8 of the CGST Act, with the principal supply being the transfer of business, thus deemed as supply of service.B. Scope of the Term 'Going Concern':- Definition and Interpretation: The term 'going concern' is not defined under the CGST Act. However, judicial and authoritative interpretations suggest it means a business that is live, operating, and capable of being carried on independently.- Education Guide and ICAI Standards: The CBIC's Education Guide and ICAI's Accounting Standards describe a going concern as a business capable of continuing operations without interruption.- Judicial Precedents: Various Advance Ruling Authorities and courts have held that transfer of a running business capable of being carried on independently qualifies as a going concern.Applicant's Submission:The applicant submits that the transfer of its cable operation business, including all assets and customer base but excluding liabilities and employees, qualifies as a transfer of a going concern. The business remains operational and capable of being carried on independently by the purchaser, ACN.Authority's Discussion and Findings:- The applicant's business is in a functioning state and the transaction involves the sale of business as a going concern, excluding liabilities and employees.- The term 'going concern' is interpreted in common parlance and judicial precedents as a running business capable of being carried on independently.- The Delhi High Court in Indo Rama Textile Limited and the Supreme Court in Allahabad Bank vs. ARC Holding held that a business is a going concern if it can operate independently, including relevant liabilities.Ruling:The Authority concluded that the transaction does not fit the definition of a 'going concern' due to the exclusion of liabilities. Therefore, the exemption under SI.No.2 of Notification No.12/2017-Central Tax (Rate) dated June 28th, 2017, is not applicable.Final Judgment:Question: Whether SI.No.2 of the Notification No.12/2017 - Central Tax (Rate) dated June 28th, 2017, granting exemption to 'Services by way of transfer of a going concern as a whole or an independent part thereof' is applicable on the business transfer undertaken in the present instanceRs.Answer: Negative.