Airport Authority business transfer to private entity qualifies for GST exemption under Notification 12/2017 Entry 2

The AAR, UP ruled that the transfer of business by Airport Authority of India to the private entity constitutes a transfer of going concern, qualifying for GST exemption under Entry No. 2 of Notification No. 12/2017. The concession fees and reimbursement of municipal/property taxes are exempt as part of the business transfer consideration. However, reimbursement of employee salary costs is taxable at 18% GST as it constitutes supply of manpower services, not part of the going concern transfer. Input tax credit reversal is required proportionately for exempted supplies under Section 17 of CGST Act.

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Issues Involved:
1. Whether the transfer of business by the Airport Authority of India (AAI) to M/s. Adani Lucknow International Airport Limited (ALIAL) is treated as a supply under Section 7 of the CGST Act, 2017.
2. Whether the transfer of business is treated as a supply of a going concern and covered under clause 4 of Schedule II of the CGST Act.
3. Whether the transfer is covered under Entry No. 2 of the exemption notification No. 12/2017 - Central Tax (Rate) dated 28-06-2017.
4. If negative, whether GST is leviable on the transfer of existing assets, aeronautical assets, non-aeronautical assets, and capital work in progress.
5. Whether the transfer of assets is treated as services and its classification.
6. Whether the concession fees paid by ALIAL to AAI are treated as consideration for the transfer of business.
7. Whether GST is applicable on monthly/annual concession fees charged by AAI.
8. Whether GST is leviable on the invoice raised by AAI for reimbursement of salary/staff costs.
9. Whether GST is applicable on the reimbursement claimed for municipal tax, property tax, and water charges.
10. Whether any reversal is required in accordance with Section 17 (2)/(3) of the CGST Act.

Detailed Analysis:

1. Transfer of Business as Supply under Section 7 of CGST Act:
The transfer of business by AAI to ALIAL is considered a supply under Section 7 of the CGST Act. The definition of supply includes transfer, and the activity of transfer of business is covered under this definition. The transfer of assets during the transfer of business is included in the definition of business, making it a supply.

2. Transfer of Business as a Going Concern and Clause 4 of Schedule II:
The term 'going concern' is not defined in the CGST Act but is understood as a business continuing in operation for the foreseeable future. The transfer of business as a going concern involves the transfer of assets and liabilities that constitute a business activity capable of being run independently. The business arrangement between AAI and ALIAL for 50 years under the Concession Agreement qualifies as a transfer of a going concern. The transfer is not covered under Clause 4 of Schedule II of the CGST Act, which deals with the transfer of business assets when a person ceases to be a taxable person.

3. Coverage under Entry No. 2 of Exemption Notification No. 12/2017:
The transfer of business by AAI to ALIAL is covered under Entry No. 2 of the exemption notification No. 12/2017 - Central Tax (Rate), which exempts services by way of transfer of a going concern. The transfer of business is considered a service since it does not qualify as a transfer of goods.

4. GST on Transfer of Existing Assets:
Since the transfer of business is covered under the exemption notification, there is no need to address the question of GST on the transfer of existing assets, aeronautical assets, non-aeronautical assets, and capital work in progress.

5. Classification of Transfer of Assets:
The transfer of assets is part of the transfer of a going concern, and no separate ruling is required for its classification.

6. Concession Fees as Consideration for Transfer of Business:
The concession fees paid by ALIAL to AAI are part of the consideration for the transfer of business assets. The fees are calculated based on passenger footfall and are considered part of the transfer of business as a going concern.

7. GST on Monthly/Annual Concession Fees:
The monthly/annual concession fees charged by AAI are part of the consideration for the transfer of business assets and are exempt from GST under Entry No. 2 of the exemption notification No. 12/2017.

8. GST on Reimbursement of Salary/Staff Costs:
The reimbursement of salary/staff costs by ALIAL to AAI is considered a supply of manpower services and not part of the transfer of business as a going concern. Therefore, GST is leviable at the rate of 18% (9% CGST and 9% SGST).

9. GST on Reimbursement of Municipal Tax, Property Tax, and Water Charges:
The reimbursement of municipal tax, property tax, and water charges is part of the consideration for the transfer of a going concern and is exempt from GST.

10. Reversal under Section 17 (2)/(3) of CGST Act:
If a person is transferring the business as a going concern, it is treated as an exempted supply. As per Section 17 read with Rule 42 of the CGST Rules, 2017, the Input Tax Credit (ITC) pertaining to such exempted supplies shall be reversed proportionately.

Ruling:
1. The transfer of business by AAI to ALIAL is treated as a supply under Section 7 of the CGST Act.
2. The transfer 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 is covered under Entry No. 2 of the exemption notification No. 12/2017.
4. No ruling required on GST leviability on the transfer of existing assets.
5. No ruling required on the classification of the transfer of assets.
6. Concession fees are part of the consideration for the transfer of business.
7. No GST is applicable on monthly/annual concession fees.
8. GST is leviable at 18% on the reimbursement of salary/staff costs.
9. No GST is applicable on the reimbursement of municipal tax, property tax, and water charges.
10. Reversal is required in accordance with Section 17 (2)/(3) of the CGST Act.

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