Transfer of Going Concern

[Kaustubh Karandikar]

XYZ (Proprietor) is converting his business from Proprietor to Private Limited Company as a ‘Going Concern’. As per Notification No. 12/2017, there is un - conditional exemption from payment of GST for Services by way of transfer of a going concern, as a whole or an independent part thereof.

1) Whether XYZ is required to prepare ‘Bill of Supply’ at the time of transfer of business?

2) What should be the value to be shown on the ‘Bill of Supply’ since no consideration is received by XYZ?

[Amit Agrawal]

As there is no physical movement of goods, question of preparation of e-way bill does not arise.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Shilpi Jain]

The assets and liabilities from the propietorship would have been transferred at book values. There would be share reecived in the Pvt. Ltd. company by the proprietor

[Kaustubh Karandikar]

Shilpi Ji, thanks for your kind reply. Will it not be at Open Market value since there is no consideration and the Proprietor and Pvt. Ltd. are related? Your valuable views please.

Amit Ji, thanks for your reply. However, as mentioned in my query, whether 'Bill of Supply' is required to be prepared by XYZ and what should be the value since there is no consideration involved and proprietor and private limited are related?

[Amit Agrawal]

Once such transfer of 'going concern' is exempted under GST, valuation thereof will not matter much from gst point of view. But, kindly remember, what is transferred / supplied is a 'going concern' which is treated as a 'singular service' under GST.

Kindly have a expert view from income tax angle about valuation of 'going concern' and implications thereof.

P.S. Transfer of 'going concern' is generally much more than mere transfer of assets & liabilities as per books of accounts from valuation point of view (For example: goodwill, which are generally not accounted for in the books). But, I do not have much idea about implications (if any) under income tax provisions.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Charu Tyagi]

In case of transfer of "Business" as a going concern by the taxable person to another person (i.e. sale, merger, demerger, amalgamation, transfer of business) with the specific provisions for transfer of liabilities. Transfer of goods will not be considered as "supply of goods". Transferor shall be allowed to transfer of ITC which remains unutilized in terms of section 18(3) of the CGST Act, 2017 read with rule 41 of CGST Rule, 2017. And, Transferee shall be considered as taxable person under the CGST Act. Also, as per the entry no 2. of Notification No. 12/2017-CTR, "services by way of transfer of a going concern, as a whole or independent part thereof" have been exempted from the GST.

[Charu Tyagi]

In continuation with yesterday's reply for your queries :-

1. Yes, XYZ has to prepare 'Bill of Supply'.

2. And the value shall be the value taken in the books of account of the "Company".

[Ganeshan Kalyani]

The value in the books of accounts to be considered for the transaction thru Bill of Supply document.

[Padmanathan KV]

Agree with the views of expert. "Bill of supply" needs to be issued. It should be billed as "supply of service" and value can be net book value

AI Summary

XYZ Converts to Private Limited Company: Bill of Supply Required, Value Based on Book Value per Notification No. 12/2017 A proprietor, XYZ, is converting a business into a private limited company as a 'going concern,' exempt from GST under Notification No. 12/2017. Queries arose about whether a 'Bill of Supply' is needed and what value to show, given no consideration is received. Responses suggest that a 'Bill of Supply' is required, with the value based on the company's book value. The transfer is treated as a singular service under GST, and the transfer of unutilized Input Tax Credit (ITC) is permissible. Valuation should consider more than just book assets and liabilities, including factors like goodwill.