Transfer of business division as going concern constitutes supply of services under Section 7 CGST Act, attracts NIL GST rate under notification 12/2017.

The AAR Karnataka held that transfer of an independent business division as a going concern constitutes supply of services under Section 7 of CGST Act 2017, not goods. The transaction qualified as supply being made for consideration in course of business. The ruling classified it under SAC 997119 (financial services) attracting 18% GST rate. However, the authority determined that notification 12/2017-Central Tax (Rate) entry 2 applies, providing NIL GST rate for transfer of going concern or independent part thereof. The AAR declined ruling on recipient's input tax credit entitlement, citing jurisdictional limitations under Section 95(a).

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Issues Involved:
1. Whether the transaction constitutes "supply" under Section 7 of the CGST/KGST Acts.
2. Classification of the transaction as supply of taxable goods or services, determination of time, value, and rate of tax.
3. Eligibility of the recipient to claim input tax credit on the transaction.
4. Applicability of GST rate as per Notification No.12/2017-Central Tax (Rate).

Summary:

Issue 1: Whether the transaction constitutes "supply" under Section 7 of the CGST/KGST Acts.
The Authority examined whether the transfer of the staffing business division by the Applicant to M/s Tessolve Semiconductor Pvt. Ltd. constitutes a "supply" under Section 7 of the CGST Act. The transaction involved the transfer of an independent running business division along with its assets and liabilities. The Authority concluded that the activity satisfies all three limbs of Section 7 (1)(a) - it is a form of supply, made for a consideration, and in the course of business. Therefore, it constitutes a "supply" under Section 7 of the CGST/KGST Acts.

Issue 2: Classification of the transaction as supply of taxable goods or services, determination of time, value, and rate of tax.
The Authority determined that the transfer of the staffing business is not a supply of goods as it is not movable property. It qualifies as a supply of services under Section 2(102) of the CGST Act. The time of supply should be determined as per Section 13 of the CGST Act, and the value of supply as per Section 15 (1). The transaction is classified under SAC 997119 (Other financial services) with an applicable GST rate of 18% as per Entry No.15(vii) of Notification No.11/2017-Central Tax (Rate).

Issue 3: Eligibility of the recipient to claim input tax credit on the transaction.
The Authority stated that the question regarding the recipient's entitlement to input tax credit is beyond its jurisdiction as per Section 95(a) of the CGST Act, which limits the scope of advance rulings to the supply undertaken by the applicant.

Issue 4: Applicability of GST rate as per Notification No.12/2017-Central Tax (Rate).
The Authority confirmed that the benefit of entry at Si No. 2 of Notification No.12/2017-Central Tax (Rate), which prescribes a NIL rate for the transfer of a going concern, applies to the Applicant's transaction, subject to fulfillment of the conditions of a going concern.

Ruling:
a. The transaction constitutes a "supply" under Section 7 of the CGST/KGST Acts.
b. It is classified as a supply of taxable services with a GST rate of 18%, and the time and value of supply should be determined as per Sections 13 and 15 (1) respectively.
c. The question about the recipient's entitlement to input tax credit cannot be answered.
d. The benefit of NIL rate as per Notification No.12/2017-Central Tax (Rate) is applicable, subject to conditions of a going concern.

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