AI Drafter 
TaxTMI 
TaxTMI 
2018 (12) TMI 767
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....l consideration does the applicant have to attribute a notional consideration and charge GST in line with schedule 1 of GST Act to be compliant? iii. If the answer to both the questions are 'affirmative' then as the recipients (MSPL/MPMPL) are eligible to avail full input tax credit then the notional consideration (percentage of the business transfer value) would be only academic and will the invoice value be considered as open market value? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the "GST Act". 02 FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- A. STATEMENT OF FACTS HAVING A BEARING ON THE QUESTIONS RAISED 1. The Merck Life Science Private Limited (h....
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....n independent third party sale does not qualify as an activity nor as a 'supply of service' between the applicant and the third party (MSPI./NIPMPL): In the present case, the applicant and the seller entered business transfer agreement for transfer of BPL business as going concern on slump sale basis wherein the applicant has only directed to transfer BPL business or part thereof to its affiliates. In this regard, it is relevant to refer extract of business transfer agreement between the applicant and seller which is reproduced (refer page 4) below for ease of reference: "....Subject to the terms and conditions set forth herein, the Seller hereby agrees to sell, transfer, convey, assign and deliver (as the case may be) to the purchaser (or to an affiliate of the purchasers, as directed by the purchaser) hereby agrees to purchase, take assignment and deliver of all of the sellers right, obligations, title and interest, liabilities, claims and demands whatsoever at law and in equity, in and to the BPL, business on the closing date on a slump sale basis as going concern..." On perusal of above, it is evident that the purchaser (i.e. in the present case applicant) can direc....
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.... any economic benefits or reduction in the consideration for the related parties (MSPL/ MPMPL). This further strengthen the above stand. 7. In absence of the element of 'supply' between the applicant' and 'MSPL/MPMPL', the evaluation of applicability of schedule 1 does not arise. Further, as per above agreements there is no consideration paid by MSPL/MPMPL to the applicant for transfer of business as going concerns. Hence, in the instant case, it is relevant to analyses provision of schedule 1 of GST Act. In terms of section 7(1)(c) of the GST Act, activities specified in Schedule I to be treated as supply which are made or agreed to be made without a consideration as extracted below for reference: " ...SCHEDULE I [See section 71 ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION 1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. 2. Supply of goods or Services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business..." In the instant scenario, the applicant and MSPL/ MPMPL are related parties in terms....
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....e intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person: Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services. In terms of section 16 of GST Act, every registered person entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the furtherance of his business. On perusal Of above provision, it is evident that in the present case also MSPL and MPMPL are registered person under GST Act in the state of Maharashtra. Further, the transaction would be used or is intended to be used in the course or furtherance of business by MSPL and MPMPL. Hence, both MSPL and MPMPL are eligible to claim input tax credit on GST charged by the applicant. Therefore, in view of above, the applicant may adopt to value the proposed transaction as per the second proviso ....
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....icant. We Merck Life Science Private Limited ('Company' or 'we' or 'Applicant'), are registered under the Goods and Service Tax Act, 2017, vide the registration no. 27AACCM1226B1Z4. This is with reference to final hearing notice for advance ruling vide application no. 62 dated 02nd August, 2018. In this respect we wish to submit the following additional grounds to provide the justification regarding the questions for which such advance ruling is sought. A. Applicant or an affiliate of the applicant had the right to buy the BPL business. In the instant case, it is important to note that the initial business transfer agreement between the seller and the applicant was executed on 21 June 2018 which authorizes the applicant or any of its affiliate to buy the BPL business on the closing date. On the very same date, another agreement was executed simultaneously between the seller, the appllant, MSPL and MPMPL for selling the respective business on a slump sale basis. This clearly highlights that the applicant and its affiliates, as directed/ identified by the applicant, had the right to buy out the respective BPL business under the initial agreement which was respectively ....
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.... for the Said loan. In case of default in repaying the loan by A to the bank, B would be under obligation to do an act of repaying the Bank. Hence, it is evident that such obligation flows expressly from the contractual terms and agreements. Such agreements stipulates the obligation in the course or furtherance of business. In the instant case, such a situation is absent. Further, the Applicant does not have an inherent right that he is relinquishing. Such right to direct sale to its affiliates emerges out of the delegation of the said authority by the affiliates. It is the right that he has acquired from the affiliates, which he is relinquishing. In case of facilitation service, an existing right is relinquished in favor of the affiliates. Here, there is no Such existing right with the applicant. It is merely an agreement for administrative convenience of all the parties involved. All the parties are involved from the very beginning and have consensus ad idem. Hence, no economic benefits accrues to the Applicant in whatsoever form. Thus, no service provided by the applicant in the course or furtherance of business. C. Slump sale is not in course or furtherance of business ....
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....indirect. This means if the economic benefit is accrued in future and the said benefit is not co-relatable with the service provided, then the said economic benefit is not covered by the pecuniary benefit mentioned in the definition. In such a case, it would be treated as provision of service without any pecuniary benefit. Hence if the economic benefit accrues in future and is not co-relatable with the service provided, then it is to be treated as no pecunniary benefit accrued to the service provider as per the definition of the 'business'. Pecuniary benefit is immediate, direct or indirect and co-relatable. But the economic benefit is a wider term and it includes the pecuniary benefit as mentioned in the definition of business and also the future benefits, indirect and not co-relatable. For example if the holding company provides service to the subsidiary company without consideration, then it fulfills the condition that the activity is not for any pecuniary benefits and hence fulfills the definition of 'Business' as per GST law and hence said service is in course or furtherance of business. However, strictly speaking, the said service helps the subsidiary company to grow....
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....ot prove that there is any economic benefit, whatsoever, attached to such relinquishing of the rights. Hence such activity of relinquishing the right is not in course of business. According said activity does not qualify as an activity mentioned in Schedule-I If the intention of law was to include activities not in course or furtherance of business, then there would have been no mention of "in course or furtherance of business" in the definition of supply under section 7 of CGST Act. There is no legal construction to declare slump sale as supply of service by inferences or implications or indirect interpretation. That is not the object and purpose of the construct of Schedule-II. The settled rule of legal construction is to presume the legislature to have meant what they have actually expressed. The intent of the parliament must be deduced from the language used. It is a settled principle of law, that question of law has to be understood in the context in which it is framed and not out of context, Further, we understand that it is a settled position of law that if there is any ambiguity in the interpretation of law for the purpose of imposition of any levy, the benefit of dou....
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....growth of the business. Running the business and growing the business are integrally connected and an entangled phenomenal. It is not commercially or technically possible to say that slump sale is not in course of business but for furtherance of business. It is similar to saying that it is not for running the business but for growing the business. If the business itself does not exist it cannot be stated that it is in course of business or for furtherance of business. The Government of India vide exemption Notification No. 12/2017- Central Tax (Rate) dated 28^th June, 2017 has exempted "Services by way of transfer of going concern. as a whole or independent part thereof." The above notification fails to have any relevance on taxability of slump sale because if there is no levy on slump sale, then it cannot be treated as taxable service. It is evident in law from a harmonious reading and interpretation of law and the context in which the Goods and Service Tax law is framed as apparent from the object and purpose of the legislation, that slump sale is neither goods nor services. In view of the above it may be stated that if the levy is not there, the question of exemption does ....
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....r, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account; If the facilitation service is provided by the taxpayer then the person qualifies as Intermediary. In the present case, the applicant had never arranged and facilitated transaction of slump sale to its affiliates. The slump sale was directly undertaken by the seller to MSPL and MPMPL. Only for administrative purpose two sets of agreement was entered. Hence the applicant is not qualify as an 'intermediary' and not liable to pay tax. F. Direction by the applicant for facilitation of any non-service (in the present case slump sale). will not qualify as supply of service. It is arguable that slump sale is neither supply of goods nor supply of service. In the instant scenario also, the applicant's direction to its seller is neither '"supply of goods" nor will qualify as "supply of service" under GST Act. If the intention of legislature was to levy tax on facilitation of non-service (i.e. slump sale) t....
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....ansfer of business vide agreement for transfer of BP and PM business but there is no activity of supply of goods or services undertaken between the 'applicant' and 'MSPL/MPMPL'; • the present transaction is neither supply of goods nor supply of services; • the applicant also doesn't qualify as an intermediary under the instant case; • the transaction is not in the course of furtherance of business; • the transaction will also not qualify under Schedule Il; • the transaction is also revenue neutral in the hands of the government. Without prejudice to above, in case above transactions are considered as taxable by your goodself, then the open market value should be the value declared in the invoice. Further, as the transaction would be used or is intended to be used in the course or furtherance Of business by' MSPL and MPMPL Hence, both MSPL and MP MPL are eligible to claim full input tax Credit on GST charged by the applicant. Hence the discussion on the valuation would just be an academic exercise. We Merck Life Science Private Limited ('Company' or 'we' or 'Applicant or 'us'), are registered under the Goods and ....
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....a direction cannot be classified as an "activity of agreeing to the obligation to do an act". • Further, the applicant and its affiliates are related parties hence, there is a possibility that it may be considered as supply under schedule I of GST Act even without consideration. However, the direction by the MLSPL to Seller (i.e. Merck Limited) is not in the course or furtherance of business hence, it Will again not qualify as 'supply' under schedule I of GST Act. Thus, based on the above discussions, it is evident that in substance direction of applicant to seller for slump sale of BPL business doesn't qualify as a service since the affiliates mentioned in the first agreement were already party to the agreement. Therefore, it is outside the purview of GST law. Further as required by your goodself, find below the computation of stamp duty discharged under the agreement along with legal provision for your ready reference: Business Transfer Agreement (BTA) • Overall consideration payable under the BTA: INR 10,520,000,000/- • Stamp duty payable: Article reference under Schedule I of the Maharashtra Stamp Act Description of head und....
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....TENTION - AS PER THE CONCERNED OFFICER The submission, as reproduced verbatim, could be seen thus- In this regard, applicant (M/s Merck Life Science Pvt. Ltd.) had sought Advance Ruling in respect of question number (c),(e) and (g) of point No. 4 at Para B i.e. Applicant's eligibility to file present Advance Ruling Application. In light of the facts as per (c), (e) and (g) of point No. 4 at Para B, applicant wishes to seek clarification on the following matters from the Authority for Advance Ruling established under GST Act: 1. Whether applicant's direction to the seller (directed in agreement dated 21 June 2018) for direct transfer of BP business to MSPL and PM business to MPMPL, respectively would qualify as a 'supply' between the 'applicant' and 'MSPL/MPML'? 2. If the answer to the above question is 'affirmative' then as the parties are related, even in absence of the actual consideration does the applicant have to attribute a notional consideration and charge GST in line with schedule 1 of GST Act to be compliant? 3. If the answer to both the questions are 'affirmative' then as the recipients (MSPL/MPMPL) are eligible to avail full input tax credit then the notio....
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....y affiliates as directed by the applicant for the BPL business which would be transferred as a slump sale on a going concern basis. The Applicant has stated that BPL business means BP business, LS business and PM business as going concern as outlined in Definitions and Interpretations. In view of the above agreement, it is stated -- --One agreement has been executed between the seller, M/s. Merck Ltd and M/S Merck Specialities Pvt.Ltd. (MSPL) for transfer of BP business to MSPL by and from seller. -- Second agreement has been entered into between the seller (M/S Merck Ltd) and and M/s Merck Performance Material Pvt. Ltd. (MPMPL), for transfer of PM business to MPMPL by and from seller. In respect of the above two agreements, the applicant has only directed the seller to transfer these above referred business to the affiliates of MSPL and MPMPL as required, as per the terms of the first agreement between the seller and the applicant referred above. It is further stated that the applicant, vide the two agreements referred above has directed the seller to transfer the BP business to MSPL and PM business to MPMPL as going concern on slump sale basis. As a result only LS ....
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....seller apparently it is seen and also claimed in the application by the applicant is that the applicant is only directing the seller to transfer these businesses to MSPL and MPMPL and this direction is as per the first agreement between the seller and the applicant. Thus we find that apparently the applicant has directed the seller for transference of these business to MSPL and MPMPL as above. We find that this act of direction on the part of the applicant to be a supply or not would have to be examined only in respect of it being a service under the scope of para 5(e) of Schedule-II in respect of the scope of supply as given in Section 7 of the CGST Act. We find that para 5 (e) reads as under:- (e) Agreeing to the obligation to refrain front an act or to tolerate an act or a situation or to do an act. In view of the above, first we examine the terms of the agreement dated 21.06.2018 between the applicant and the seller and then the agreement between the seller and MSPL and between the seller and MPMPL to ascertain if the act of giving direction by the applicant would fall in the scope of supply between the applicant and MSPL and MPMPL. We find that the agreement dtd....
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....rised in the BPL business. The Parties agree that the determination of the value of any asset for the purpose of payment of stamp duty, registration fees, or other similar Taxes shall not be regarded as assignment of values to individual assets. 7. PAYMENTS ON CLOSING 7.1 Purchaser Payments At closing, the Purchaser shall pay to the Seller in accordance with clause 22.1 (Payments made by the Purchaser) (a) the BPL business price; plus (b) the Determined VAT to the extent it is due as at closing. 8. TERMINATION 8.1 Seller and Purchaser options to terminate. This Agreement may be terminated and the Transaction abandoned at any time prior to the Closing: (a) by mutual written consent of the Seller and the Purchaser; (b) by the Seller, if a Condition set forth in clause 4.1(a) (Closing Conditions) is not satisfied or waived on the Long Stop Date; (c) by the Purchaser, if a Condition set forth in clause 4.1(a) (Closing Conditions) is not satisfied or waived on the Long Stop Date; or (d) automatically in the event that the Condition set forth in clause 4.1(a) (Closing Conditions) is no longer capable of being satisfied. 8.2 Notice of termination. In the e....
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....ar of these slump sale business transfer agreement would also be clear from the relevant paras of the consequent agreement to the first agreement referred above. The consequent agreement i.e '"Agreement for transfer of the BP and PM businesses" is also dated 21.06.2018. We reproduce the relevant paras of the same which are as under:- AGREEMENTFOR THE TRANSFER OF THE BP AND PM BUSINESSES dated 21 June 2018 PARTIES: (1) MERCK LTD., a company incorporated under the provisions of the Companies Act, 1956, having its registered office at Godrej One, 8th floor, Pirojshanagar, Eastern Express Highway, Vikhroli (East), Mumbai-400079 and corporate identity number L99999MH1967PLC013726 (Seller); (2) MERCK LIFE SCIENCE PVT. LTD., a company incorporated under the provisions of the Companies Act, 1956, having its registered office at Godrej One, 8th floor, Pirojshanagar, Eastern Express Highway, Vikhroli (East), Mumbai - 400079 with company identification number U33100MH198ærC221693, India (Merck 1); (3) MERCK SPECIALITIES PVT. LTD., a company incorporated under the provisions of the Companies Act, 1956, having its registered office at Godrej One, 8th floor, Pirojshanagar....
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....ve, perform, and discharge, all of the rights, Obligations, title and interest, liabilities, claims and demands whatsoever at law and in equity, in and to the PM Business, as a going concern on a Slump Sale basis, simultaneously with the BTA Closing; and 3. PRICE 3.1 The Parties agree that the purchase price to be paid to Seller pursuant to clause 3.1 (Aggregate Price) of the Business Transfer Agreement shall be paid by Merck 1, Merck 2 and Merck 3 as follows:- (a) Merck 1 shall, pursuant to and in accordance with the Business Transfer Agreement, pay to the Seller the proportion Of the BPL Business Price (as defined in the Business Transfer Agreement) which relates to the LS Business, being two billion, nine hundred thirty million, one hundred thousand Rupees(INR 2,930,100,000) (the LS Business Price) together with the IS determined VAT to the extent it is due as at BTA Closing, it being understood that the LS Business Price has been determined based on the value of the LS Business as a whole and shall be paid to Seller as a lump sum consideration for transfer of the LS Business by Seller to Merck 1 on a going concern basis; (b) Merck 2 shall pay to the Seller the propo....
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....eller for transfer of BP and PM businesses to MSPL and MP MPL respectively as per his directions and terms and conditions agreeable to him due to special authority in this regard, vested in him through the first agreement dated 21.06.2018 between him and the seller. Now we proceed to Question No. 2 raised by the applicant which is as under:- Question 2:- if the answer to the above question is 'affirmative' then as the parties are related, even in absence of the actual consideration does the applicant have to attribute a notional consideration and charge GST in line with schedule 1 of GST Act to be compliant? In respect of Question NO. 2 we find that the present case involves provision of service as per para 5 (e) of Schedule II to Section 7, between related person where the applicant is stating that there is no consideration. In view of this in this case the value is to be determined in terms of Rule 28 of the CGST Rules, 2017. Now we come to Question No. 3 as raised by the applicant which is as under:- Question 3 :- If the answer to both the questions are ' affirmative' then as the recipients (B{SPL/MPMPL) are eligible to avail full input tax credit then....