2021 (9) TMI 1064 - AAR - GST

Transfer of business by AAI to SPV: GST implications under CGST Act

The transfer of business by AAI to SPV is considered a supply under Section 7 of the CGST Act and is treated as a supply of a going concern. It is exempt ... Supply or not - supply as going concern or not - transfer of business by the AAI to the M/s. Adani Ahmedabad International Airport Limited - covered in clause 4 of schedule II of CGST Act viz-a-viz GSGST or not - scope of Entry No. 2 of the exemption N/N. 12/2017 – Central Tax (Rate) dated 28-06-2017 issued u/s Section 11 of CGST Act 2017 - levy of GST on the transfer of Existing assets (RAB), Aeronautical Assets, non-aeronautical assets and Capital work in progress by AAI - transfer of asset be treated as services or not - concession fees paid by M/s. Adani Ahmedabad International Airport Limited to AAI be treated as consideration for transfer of business or not - levy of GST on Monthly/Annual concession fees charged by the AAI - levy of GST on invoice raised by AAI for reimbursement of the salary/ staff cost on M/s. Adani Ahmedabad International Airport Limited - levy of GST on reimbursement claimed of Municipal tax, Property Tax and Water Charges by the AAI - levy of GST on transfer of spares and consumables for consideration by the AAI - rate of GST. Whether said business arrangement between AAI and SPV is a transfer of going concern or otherwise? - HELD THAT:- Transfer of a going concern means transfer of a running business which is capable of being carried on by the transferee as an independent business in continuity without any hindrance for a foreseeable period. Such transfer of business will comprise transfer of assets for running the business. Such transfer as going concern may involve transfer of employees as requisite to carry on the business without interruption. In effect, it implies that the business will continue in the new hands with regularity and a nature of permanency - subject business arrangement between AAI and SPV merits to be covered under transfer of going concern. Whether the transfer of business by AAI to SPV be treated as Supply under Section 7 CGST? - HELD THAT:- From the construction of the wordings in sections 18(3); 22(3) and 85(1); Schedule II(4) of CGST Act and the Rule 41(1) CGST Rule, it is found that ‘transfer of Business’ is more of an event in pursuance to a business arrangement - subject business arrangement is ‘Transfer of business of an independent part with respect to SVP International Airport’ by AAI to SPV for a period of fifty years which is a foreseeable future - subject supply is Transfer of Going Concern as an independent part with respect to the said Airport. Whether subject supply is made for a consideration in the course or furtherance of business or not - HELD THAT:- The consideration may be one time or in installments or as per the agreed terms between AAI and SPV. In this context, the payment made by the SPV to AAI includes the estimated deemed regulatory asset base, payment made by SPV towards the estimated initial non-aeronautical investments, Concession fees, all these payments are as per the terms and conditions of the contract and are the consideration to be paid by SPV to AAI for execution of the contract - thus, from Notification 12/2017 sr no. 2, it is clear that transfer of going concern is supply of service, we hold that subject business arrangement is Supply of Service as per section 7(1) CGST Act. Whether the transfer of business by AAI to SPV is treated as supply as going concern and covered in clause 4 of schedule II of CGST Act? - HELD THAT:- The subject transfer of business by AAI to SPV is treated as supply of going concern - AAI has not ceased to be a Taxable person as AAI has only transferred its Ahmedabad Airport business to the SPV but its other business are not transferred and for such business the AAI is a taxable person and registered under GST. The subject business arrangement is ‘transfer of going concern service’. There are no merit to vivisect the subject Contract and examine the treatment of aeronautical assets/ non aeronautical assets/ other business assets in the Contract entered between AAI and SPV. The substance of the Contract compels us, under GST scheme of law interpretation, to classify the Subject Business Arrangement as ‘Transfer of Going concern Service’. The subject transfer is that of transfer of going concern as an independent part. In this context, there are no merit to examine Schedule II(4)(c) CGST Act as it is limited to the transfer of business assets activity. Such attempt to vivisect the Contract renders a myopic view and runs counter to the ‘Transfer of Going concern service’ envisaged in the substance of the Contract. Also, GST on proposed supply of spares and consumables by AAI to SPV, these supplies being outside the scope of subject contract, is leviable to tax as per law. Issues Involved:1. Whether the transfer of business by AAI to SPV is a supply under Section 7 of the CGST Act.2. Whether the transfer of business qualifies as a supply of a going concern and is covered under clause 4 of Schedule II of the CGST Act.3. Whether the transfer of business is exempt under Entry No. 2 of Notification No. 12/2017-Central Tax (Rate).4. GST applicability on the transfer of existing assets, aeronautical assets, non-aeronautical assets, and capital work in progress.5. Classification of the transfer of assets as services.6. Whether concession fees paid by SPV to AAI are considered as consideration for the transfer of business.7. GST applicability on monthly/annual concession fees charged by AAI to SPV.8. GST applicability on reimbursement of salary/staff costs by AAI to SPV.9. GST applicability on reimbursement of municipal tax, property tax, and water charges by AAI to SPV.10. GST applicability on the transfer of spares and consumables for consideration by AAI to SPV.Detailed Analysis:1. Supply under Section 7 of the CGST Act:The transfer of business by AAI to SPV is considered a supply under Section 7 of the CGST Act. The definition of supply includes all forms of supply of goods or services made for a consideration by a person in the course or furtherance of business. Since the business is not movable property, it is not considered goods. However, as per Section 2(102) of the CGST Act, services include anything other than goods, making the transfer of business a supply of services.2. Supply of a Going Concern:The transfer of business by AAI to SPV is treated as a supply of a going concern. The business arrangement is set for 50 years, indicating a foreseeable future. The SPV assumes control of all aeronautical and non-aeronautical assets, terminal buildings, and financial transactions. The contract ensures the continuity of operations without interruption, making it a transfer of a running business capable of being carried on by the transferee as an independent business.3. Exemption under Entry No. 2 of Notification No. 12/2017-Central Tax (Rate):The transfer of business as a going concern is exempt from GST under Entry No. 2 of Notification No. 12/2017-Central Tax (Rate). This entry exempts services by way of transfer of a going concern, as a whole or an independent part thereof. The transfer of business by AAI to SPV qualifies for this exemption.4. Transfer of Existing Assets:Since the transfer of business qualifies as a transfer of a going concern, the question of GST applicability on the transfer of existing assets, aeronautical assets, non-aeronautical assets, and capital work in progress does not arise.5. Classification as Services:The transfer of business is classified as a supply of services. As the transfer of business is considered a transfer of a going concern, it falls under the category of services.6. Concession Fees:The concession fees paid by SPV to AAI are considered part of the consideration for the transfer of business. These fees are calculated based on passenger footfall and are part of the terms and conditions of the contract.7. GST on Concession Fees:The consideration for the transfer of business as a going concern is exempt from GST under Entry No. 2 of Notification No. 12/2017-Central Tax (Rate). Therefore, the monthly/annual concession fees charged by AAI to SPV are exempt from GST.8. Reimbursement of Salary/Staff Costs:The reimbursement of salary/staff costs by AAI to SPV is exempt from GST as it is part of the consideration for the transfer of business as a going concern.9. Reimbursement of Municipal Tax, Property Tax, and Water Charges:The reimbursement of municipal tax, property tax, and water charges by AAI to SPV is exempt from GST as it is part of the consideration for the transfer of business as a going concern.10. Transfer of Spares and Consumables:GST is applicable on the transfer of spares and consumables for consideration by AAI to SPV. However, as the details of the goods are not available and the activity is outside the subject contract, the specific tax rate cannot be determined.Ruling:1. The transfer of business by AAI to SPV is a supply under Section 7 of the CGST Act.2. The transfer of business is treated as a supply of a going concern and is not covered under clause 4 of Schedule II of the CGST Act.3. The transfer of business is exempt under Entry No. 2 of Notification No. 12/2017-Central Tax (Rate).4. Not required due to the exemption ruling.5. Not required due to the exemption ruling.6. Concession fees are part of the consideration for the transfer of business.7. The consideration for the transfer of business is exempt from GST.8. The reimbursement of salary/staff costs is exempt from GST.9. The reimbursement of municipal tax, property tax, and water charges is exempt from GST.10. GST on the proposed supply of spares and consumables is leviable as per law.