2023 (4) TMI 959 - AAR - GST

Airport business transfer to private operator exempt from GST as going concern under Entry 2 Notification 12/2017-CT(R)

The AAR Rajasthan held that the transfer of Jaipur Airport business from Airports Authority of India to Adani Jaipur International Airport Limited ... Supply under section 7 of the CGST Act - Transfer of a going concern - Services by way of transfer of a going concern - Entry No. 2, Notification No.12/2017-Central Tax (Rate) - Schedule II(4) - transfer of business assets - Consideration forming part of transfer of going concern (including concession fee) - Taxability of reimbursement of staff costs as supply of manpower services - Exemption and input tax credit reversal under section 17 read with rule 42Supply under section 7 of the CGST Act - Transfer of a going concern - Subject transfer is a supply under section 7 and constitutes a transfer of a going concern service - HELD THAT: - The Authority examined the concession agreement and statutory definitions. Business is not goods (not movable property) and therefore the transfer cannot be a supply of goods; it falls within the definition of 'services'. Applying established tests (continuity for a foreseeable period, capability to be carried on independently, transfer of assets/rights/arrangements necessary for operation) the concession arrangement transferring operation, management and development of the airport to the SPV for 50 years satisfies the requirement of a going concern. Consequently the activity is a supply under section 7 characterised as 'transfer of going concern service'.The transfer is a supply under section 7 and is a 'transfer of going concern service'.Schedule II(4) - transfer of business assets - Transfer of a going concern - The transaction is not to be treated under clause 4 of Schedule II as a mere transfer of business assets - HELD THAT: - Schedule II(4) deals with treatment of transfers of business assets as supply of goods or services. The Authority found the concession to be a transfer of a going concern (service) and held that vivisecting the contract to treat components as isolated asset transfers under Schedule II(4) would be contrary to the substance of the arrangement. AAI did not cease to be a taxable person and only one independent part (the airport) has been transferred as a going concern.The subject supply is a 'transfer of going concern service' and is not covered under clause 4 of Schedule II.Services by way of transfer of a going concern - Entry No. 2, Notification No.12/2017-Central Tax (Rate) - Exemption - The supply falls within Entry No.2 of Notification No.12/2017 and is exempt from GST - HELD THAT: - Notification No.12/2017 exempts 'services by way of transfer of a going concern, as a whole or an independent part thereof.' Having held the transaction to be a transfer of a going concern service, the Authority concluded that the consideration for that supply is covered by Entry No.2 and thus exempt from GST. The form of consideration (one time, instalments or periodic concession fees) does not vitiate the exemption.The subject supply is covered by Entry No.2 of Notification No.12/2017 and is exempt from GST.Transfer of business assets - Ruling on separate taxability of individual asset transfers (RAB, aeronautical/non aeronautical assets, CWIP) not required - HELD THAT: - Since the primary question was determined in favour of the transaction being a transfer of a going concern service and consequently exempt, the Authority found no need to answer separately whether individual asset transfers attract GST. The assets are part of the composite transfer of the going concern.Ruling not required in view of the finding that the subject supply is a transfer of going concern service.Consideration forming part of transfer of going concern (including concession fee) - Concession fee and other contractual payments form part of the consideration for the transfer of going concern - HELD THAT: - The Authority observed that consideration for transfer of a going concern may take various forms and that the concession fees (calculated on passenger throughput) and upfront/one time payments are part of the contractual consideration for the composite transfer. As the underlying supply is held to be exempt, these amounts fall within the exempted consideration to that extent.Concession fee is part of the consideration for the transfer of going concern and, given the exemption, forms part of the exempt supply.Taxability of reimbursement of staff costs as supply of manpower services - Reimbursement invoiced by AAI for select employees' emoluments is taxable at 18% - HELD THAT: - The Authority distinguished reimbursement of select employees' emoluments from the exempt transfer of going concern. Select employees remain AAI employees until and unless they accept employment with the SPV; until acceptance the payments/invoices by AAI to the SPV for such emoluments represent supply of manpower services (or reimbursement in relation thereto) by one distinct taxable person to another and do not form part of the transfer of going concern exemption. Accordingly such invoiced amounts are taxable and classifiable as manpower services.Invoices raised by AAI for reimbursement of select employees' salary/staff costs are taxable at 18% (9% CGST + 9% SGST).Reimbursement of municipal/property/water charges - Transfer of going concern - exemption - Reimbursement of municipal tax, property tax and water charges is not taxable separately as it falls within the transfer of going concern service - HELD THAT: - The Authority found that reimbursements of municipal/property/water charges arise pursuant to the concession agreement and are incidental to the composite transfer of the going concern; having held the composite supply to be exempt under Entry No.2, those reimbursements are not treated as taxable supplies separate from the exempt transfer.No GST is applicable on the claimed reimbursements of municipal tax, property tax and water charges in the facts of this contract.Exemption and input tax credit reversal under section 17 read with rule 42 - Input tax credit reversal under section 17(2)/(3) is required to the extent attributable to the exempt supply - HELD THAT: - Because the Authority has held that the transfer of going concern service is an exempt supply under Notification No.12/2017, any input tax credit attributable to the exempted supply must be reversed proportionately in accordance with section 17 read with the relevant rules (including rule 42). The Authority directed reversal where applicable.Yes - reversal of ITC is required in accordance with section 17(2)/(3) and applicable rules for the portion attributable to exempt supplies.Final Conclusion: The concession agreement effecting transfer of operation, management and development of Jaipur International Airport to the SPV is a supply under section 7 characterised as a 'transfer of a going concern service'; that supply is covered by Entry No.2 of Notification No.12/2017 and is exempt from GST. Component reimbursements incidental to the exempt transfer (municipal/property/water charges) are not taxable separately; however, invoices for reimbursement of select employees' emoluments (manpower services) are taxable at 18%. As a consequence, input tax credit attributable to the exempt supply must be reversed in accordance with section 17 and the rules. Issues Involved:1. Whether the transfer of business by the Airport Authority of India (AAI) to M/s. Adani Jaipur International Airport Limited (AJIAL) qualifies 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 of business is covered under Entry No. 2 of the exemption notification No. 12/2017 - Central Tax (Rate) dated 28-06-2017.4. GST implications 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. Treatment of concession fees paid by AJIAL to AAI.7. GST applicability on monthly/annual concession fees.8. GST applicability on reimbursement of salary/staff costs.9. GST applicability on reimbursement of municipal tax, property tax, and water charges.10. Reversal requirements under Section 17(2)/(3) of the CGST Act.Summary:1. Transfer of Business as Supply:The Authority ruled that the transfer of business by AAI to AJIAL qualifies as 'Supply' under Section 7 of the CGST Act, 2017. The definition of supply includes transfer, and the activity of transferring business fits within this definition. Business, as defined under Section 2(17)(d) of the CGST Act, includes the supply or acquisition of goods and services in connection with the commencement or closure of business.2. Supply as a Going Concern: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. The business arrangement between AAI and AJIAL meets the criteria of a going concern, which includes the continuity of business for a foreseeable period, no intention to liquidate, and the capability to run independently.3. Exemption under Notification No. 12/2017:The transfer of business by AAI to AJIAL is covered under Entry No. 2 of the exemption notification No. 12/2017 - Central Tax (Rate) dated 28-06-2017. This entry exempts services by way of transfer of a going concern, as a whole or an independent part thereof.4. GST on Transfer of Assets:Since the transfer of business qualifies as a transfer of a going concern, there is no need to separately address the GST implications on the transfer of existing assets, aeronautical assets, non-aeronautical assets, and capital work in progress.5. Classification of Transfer of Assets:The classification of the transfer of assets as services is not required as the transfer of business as a going concern is already covered under the exemption notification.6. Concession Fees as Consideration:The concession fees paid by AJIAL to AAI are treated as consideration for the transfer of business.7. GST on Concession Fees:The monthly/annual concession fees are part of the consideration for the transfer of a going concern and are exempt from GST under Entry No. 2 of Notification No. 12/2017-CT(R) dated 28-06-2017.8. GST on Reimbursement of Salary/Staff Costs:GST is leviable on the invoice raised by AAI for reimbursement of salary/staff costs to AJIAL at the rate of 18% (9% CGST and 9% SGST). The reimbursement of emoluments to AAI does not form part of the transfer of business as a going concern and is considered a supply of manpower services.9. GST on Reimbursement of Municipal Tax, Property Tax, and Water Charges:The reimbursement of municipal tax, property tax, and water charges falls under the supply of transfer of a going concern service and is exempt from GST.10. Reversal of ITC:AAI is required to reverse the ITC proportionate to the exempt supply of services by way of transfer of a going concern as per Section 17(2)/(3) of the CGST Act.Ruling:1. The transfer of business is a supply under Section 7 of the CGST Act.2. The transfer is a supply of a going concern and not covered under clause 4 of Schedule II of the CGST Act.3. The transfer is covered under Entry No. 2 of Notification No. 12/2017-CT(R).4. No separate ruling required for GST on transfer of assets.5. No separate ruling required for classification of transfer of assets.6. Concession fees are part of the consideration for the transfer of business.7. Monthly/annual concession fees are exempt from GST.8. GST at 18% is applicable on reimbursement of salary/staff costs.9. No GST on reimbursement of municipal tax, property tax, and water charges.10. Reversal of ITC is required as per Section 17(2)/(3) of the CGST Act.