Transfer of going concern in an airport concession was exempt, while separate spares and consumables supply remained taxable.

Transfer of an operating airport undertaking for a long concession period, with assets, liabilities, employee obligations and operational control passing to the concessionaire, was treated as a supply of service under section 7 of the CGST Act. The arrangement was also characterised as transfer of a going concern as an independent part of the business, so Schedule II entry 4 was held inapplicable to determine its nature. As the transaction fell within Entry 2 of Notification No. 12/2017-Central Tax (Rate), the concession fee and linked reimbursements of staff and municipal charges formed part of the exempt consideration. Only the proposed out-of-contract supply of spares and consumables remained taxable.

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Issues: (i) Whether the transfer of the airport undertaking by the authority to the concessionaire amounted to a supply under section 7 of the CGST Act; (ii) Whether the arrangement constituted transfer of a going concern and whether Schedule II, entry 4 was attracted; (iii) Whether the transfer fell within Entry 2 of Notification No. 12/2017-Central Tax (Rate) and whether concession fee and reimbursement of staff or municipal charges formed part of exempt consideration; (iv) Whether the proposed supply of spares and consumables outside the contract was taxable.

Issue (i): Whether the transfer of the airport undertaking by the authority to the concessionaire amounted to a supply under section 7 of the CGST Act.

Analysis: The arrangement involved transfer of the airport operations, management and development for a long concession period, with monetary and non-monetary consideration flowing from the concessionaire to the authority. The reasoning treated business transfer as falling within the concept of service rather than goods, and noted that the statutory scheme contemplates transfer of business by sale, lease, licence or any other manner as a taxable supply when undertaken for consideration in the course or furtherance of business.

Conclusion: The transfer was held to be a supply under section 7 of the CGST Act.

Issue (ii): Whether the arrangement constituted transfer of a going concern and whether Schedule II, entry 4 was attracted.

Analysis: The contract was examined as a composite business arrangement for a foreseeable future of 50 years, with transfer of assets, liabilities, contractual rights, employee-related obligations and operational control sufficient to keep the airport running without interruption. The ruling held that a going concern can be transferred as an independent part of a larger business and that the substance of the arrangement, not the label of sale, lease or any other mode, determines its character. Schedule II entry 4 was found to deal with transfer of business assets and not to govern the present transfer of the business undertaking as a going concern.

Conclusion: The arrangement was held to be transfer of a going concern as an independent part, and Schedule II, entry 4 was held inapplicable for determining the nature of the present transaction.

Issue (iii): Whether the transfer fell within Entry 2 of Notification No. 12/2017-Central Tax (Rate) and whether concession fee and reimbursement of staff or municipal charges formed part of exempt consideration.

Analysis: Once the transaction was characterised as transfer of a going concern, it was held to be covered by Entry 2 of the exemption notification. The concession fee was treated as part of the consideration for the exempt supply, and reimbursements of staff cost and municipal or similar charges arising under the same contract were also treated as part of the exempt consideration, since they were inextricably linked to the transfer of going concern service.

Conclusion: The transaction was held exempt under Entry 2 of Notification No. 12/2017-Central Tax (Rate), and concession fee as well as the stated reimbursements were held to form part of the exempt consideration.

Issue (iv): Whether the proposed supply of spares and consumables outside the contract was taxable.

Analysis: The ruling distinguished the proposed supply of spares and consumables from the subject contract and noted that the question was outside the scope of the transfer of going concern arrangement. Since the proposed supply was not covered by the exempt contract, it was left to be taxed according to the applicable law.

Conclusion: The proposed supply of spares and consumables was held to be taxable as per law.

Final Conclusion: The core airport concession arrangement was characterised as a taxable supply of transfer of going concern service, but that supply was exempt under the specified notification; only the proposed out-of-contract supply of spares and consumables was left taxable.

Ratio Decidendi: A long-term transfer of an operating business undertaking that continues as a running concern and is capable of independent operation is a supply of service and, when covered by the exemption entry for transfer of a going concern, is not liable to GST.

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