Transfer of CRF unit constitutes supply of services not goods under GST law per AAR ruling

AAR, West Bengal ruled that transfer of a CRF unit constitutes supply of services, not goods, under GST law. The transaction involves transfer of business assets, liabilities, and employees, which cannot be classified as supply of goods since business is not movable property. The transfer qualifies as supply of services under Entry No. 2 of Notification No. 12/2017-Central Tax (Rate), subject to meeting going concern conditions. However, the applicant failed to provide auditor documentation proving ability to continue operations, preventing definitive going concern classification.

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Issues Involved:
1. Whether the transaction would amount to supply of goods, supply of services, or supply of goods and services.
2. Whether the transaction would be covered under Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Issue-wise Detailed Analysis:

1. Whether the transaction would amount to supply of goods, supply of services, or supply of goods and services:

The applicant, engaged in manufacturing Ferro alloys and Cold Rolled Formed Sections, intends to sell its CRF unit as a whole, including transferring all assets and liabilities, for a lump sum consideration. The applicant argues that this transaction is a transfer of business as a going concern, which should be considered a supply of service under section 7 of the GST Act. The applicant supports this with references to various clauses in the Business Transfer Agreement (BTA) and relevant case laws, including the Delhi High Court ruling in Indo Rama Textile Limited and the Supreme Court ruling in Allahabad Bank Vs. ARC Holding.

The Authority observed that the applicant intends to sell the entire CRF unit where the purchaser agrees to take over all assets, liabilities, and employees. The Authority noted that such a transfer cannot be treated as a supply of goods since a business is not movable property and thus falls under the definition of 'services' as per section 2(102) of the GST Act.

2. Whether the transaction would be covered under Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017:

The applicant contends that the transaction qualifies for exemption under Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which covers services of transfer of a going concern, as a whole or independent part thereof, at a 'NIL' rate of GST. The applicant's argument is supported by Advance Rulings from the Karnataka and Gujarat Authorities for Advance Ruling, which held similar transactions as transfer of a going concern, thereby qualifying for the exemption.

The Authority scrutinized the BTA clauses and found that the purchaser would continue the business with the current employees and that the seller agreed not to engage in competing activities. These clauses indicate the business's continuity, supporting the applicant's claim that the transaction is a transfer of a going concern.

However, the Authority noted the absence of documentary evidence from the auditor regarding the entity's ability to continue operations for the foreseeable future, which is a key condition to qualify as a going concern.

Ruling:

(i) The transaction of transfer of the business unit of the applicant involved in the instant case shall be treated as a supply of services.

(ii) The transaction would be covered under Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, subject to the fulfillment of the conditions to qualify as a going concern.

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