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 of a going concern' was not applicable in the case of a business transfer where liabilities were excluded. The transaction did not meet the definition of a 'going concern' as it lacked the inclusion of liabilities.

---

---

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.

---