Going-concern business transfers are treated as GST services, while non-qualifying business assets face deemed goods taxation.
Transfer of an entire business undertaking between distinct registered persons, even without consideration, falls within the scope of supply under GST. When the undertaking is transferred as a whole, it is characterised as a supply of services because it is neither goods, money nor securities. Nil-rate treatment for transfer of a going concern, whether as a whole or as an independent part, applies only where the business demonstrably qualifies as a going concern. If that condition is not met, stock, fixed assets and other business assets are deemed supplies of goods immediately before cessation of taxable person status and are taxable at the applicable rates.
Issues: (i) Whether transfer of the entire business undertaking without consideration to a distinct registered person constitutes a supply under GST. (ii) Whether the transfer is a supply of goods or a supply of services. (iii) Whether the transfer is covered by Serial No. 2 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. (iv) Whether stock and fixed assets are taxable where the business does not qualify as a going concern.
Issue (i): Whether transfer of the entire business undertaking without consideration to a distinct registered person constitutes a supply under GST.
Analysis: Section 7 of the Central Goods and Services Tax Act, 2017 has an inclusive scope and encompasses specified supplies made without consideration. The proposed arrangement transfers the entire undertaking, including assets, liabilities, employees, rights, customers and operations, from one registered person to another. Such comprehensive transfer was treated as a supply notwithstanding that it is without consideration and is not in the ordinary course of business.
Conclusion: The transfer of the entire business undertaking constitutes a supply under GST.
Issue (ii): Whether the transfer is a supply of goods or a supply of services.
Analysis: Entry 4(c) of Schedule II excludes a business transferred as a going concern from deemed supply-of-goods treatment on cessation of taxable person status. A business undertaking transferred as a whole is not movable property qualifying as goods under Section 2(52); being neither goods, money nor securities, it falls within services under Section 2(102).
Conclusion: The transfer of the business undertaking amounts to a supply of services.
Issue (iii): Whether the transfer is covered by Serial No. 2 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
Analysis: Serial No. 2 grants nil-rate treatment to services by way of transfer of a going concern as a whole or an independent part thereof. Although the arrangement provides for continuity of operations, employees, assets and liabilities, no documentary evidence was furnished to establish that the business satisfies the requirements of a going concern.
Conclusion: The transfer is covered by Serial No. 2 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 only if the business qualifies as a going concern.
Issue (iv): Whether stock and fixed assets are taxable where the business does not qualify as a going concern.
Analysis: Under Entry 4(c) of Schedule II, goods forming part of business assets are deemed supplied immediately before cessation of taxable person status unless the business is transferred as a going concern. The going-concern exception is therefore unavailable where that condition is not met.
Conclusion: Stock, closing stock and other business assets are supplies of goods and are taxable at the rates applicable to the respective goods if the business does not qualify as a going concern.
Final Conclusion: A comprehensive transfer of the undertaking is characterised as a supply of services, with nil-rate treatment dependent upon proof that the undertaking is transferred as a going concern; otherwise, the transferred business goods attract tax as deemed supplies.
Ratio Decidendi: Transfer of a business undertaking as a going concern is a supply of services eligible for the Serial No. 2 exemption, whereas failure of the going-concern condition results in deemed supply-of-goods treatment for business assets upon cessation.