GST on Goodwill (takeover of clients)

[Bhavesh Suthar]

1) We are a Company, taking over the clients of another Company. For this takeover of clients, we are paying goodwill to the Company as a consideration. Will this be chargeable under GST and under which section. If no, what is the basis

[Shilpi Jain]

This will require examination of the agreement.

GST is applicable only on supply. If this transaction of takeover of clients is taxable then department may argue that goodwill is nothing but the margin for it.

Contract terms are critical.

[KASTURI SETHI]

Dear Querist,

The following case law can help you to understand the issue and concept.

2018 (12) TMI 866 - CESTAT CHENNAI -  HYUNDAI MOTOR INDIA LTD. Versus COMMISSIONER OF GST & C. EX., CHENNAI

 

[Ganeshan Kalyani]

Is it not a slump sale.

[Vijay kumar]

Definition of supply u/s 7 is very wide. It includes exchange, transfer, barter etc.. There is consideration by a person in the course of furtherance of business. He is giving you clients in exchange of consideration. Business definition is inclusive and it includes-supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;. (acquisition of service)

Definition of service includes all activities other than money and stocks. Accordingly, it seems to be supply of service and is taxable, unless otherwise exempt under Nofn.12/2017-ST.

Sn.7 - supply - all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

AI Summary

Supply under GST: payment for takeover of clients may be taxable as supply of goodwill unless recharacterised.
GST liability for payment made to take over another entity's clients depends on whether the payment constitutes a supply in the course or furtherance of business. If the client transfer is effectively a transfer of goodwill or an exchange of customer relationships for consideration, it may be taxable as a service; alternatively, classification as a slump sale or transfer of an intangible asset will alter the GST outcome. Contract terms and factual characterisation are decisive, and exemptions or prior adjudications may be relevant.