AI Drafter 
TaxTMI 
TaxTMI 
2021 (9) TMI 1064
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....on 12(3) of AAI Act, as required from time to time to achieve the above object such as: (i) Plan, develop, construct and maintain runways, taxiways, aprons, terminals and ancillary building at the airports and civil enclaves; (ii) Establish airports or assist in the establishment of private airports by rendering such technical, financial or other assistance which the Central Govt. may consider necessary for such purpose; (iii) Plan, procure, install and maintain navigation aids, communication equipment, beacons and ground aids at the airports and at such location as may be considered necessary for safe and operation of aircrafts; (iv) Provide air safety services and search and rescue, facilities in co-ordination with other agencies; (v) Establish and maintain hotels, restaurants and restrooms at or near the airports; (vi) Arrange for postal, money exchange, insurance and telephone facilities for the use of passengers and other persons at the airports and civil enclaves; (vii) Regulate and control the plying of vehicles, and the entry and exit of passengers and visitors, in the airports and civil enclaves with due regard....
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.... India conducted PPP (Public Private Partnership) bidding process in which M/s. Adani Enterprises Limited (the "Concessionaire"), an Ahmedabad-based business conglomerate had won the bid of the airport quoting highest bid among all. 8. The Concessionaire agrees to pay to AAI the following sum as consideration for transfer: - • Rs. 2,71,00,00,000/- towards Estimated Deemed Initial Regulatory Asset Base ("RAB") i.e. estimated depreciated value of Investments made by the Applicant in the Aeronautical Assets at the airport as on 31st March 2018. • Rs. 6,41,00,000/- towards Estimated Initial Non-Aeronautical Investments i.e. estimated depreciated value of investments made by the applicant towards development of the Non-Aeronautical Assets at the Airport as on 31st March 2018. • Actual amount incurred by AAI in respect of contracts relating to Work-in-Progress as on the Commercial operation Date ("COD"). • Reimbursement of salaries incl. of other cost paid to employees of AAI having designation of Asst. General Manager and below during the Joint Management Period and deemed deputation period as per Clause 6.5.4 of the Concession Agre....
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....of the Site including: a) rights over the Site in the form of lease, Right of way or otherwise; b) the Aeronautical Assets and the Non-Aeronautical/ Assets; c) tangible assets such as civil works and equipment including foundations, drainage works, electrical systems, communication systems and administrative offices; d) Project Facilities situated on the Site; e) buildings and immovable fixtures or structures forming part of City Side Development; f) all rights of the Concessionaire under the Project Agreements; g) financial assets, such as receivables, security deposits, all negotiable instruments etc.; h) insurance proceeds; and i) Applicable Permits and authorisations relating to or in respect of the Airport." 13. The applicant has submitted various relevant clauses of the agreement which throws light on the underlying transaction as under : Reference in the agreement i.e. Clause No./ Article No. Summary of the clause Recital A The functions and powers of the AAl, under the AAI Act include the development, maintenance and management of the airports in India. ln pursuance ....
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....d in this Agreement, bear and pay all costs, expenses, Taxes and charges in connection with or incidental to the performance of the obligations of the SPV under this Agreement; and g) neither assign, transfer or create any lien or encumbrance on this Agreement, or the Concession hereby granted or on the whole or any part of the Airport nor transfer, or part possession thereof, save and except as expressly permitted by this Agreement or the Substitution Agreement. ln addition, SPV shall undertake development, finance, operation and maintenance of real estate at the Site specified in Schedule A, in accordance with Schedule B and Schedule C, and to use such development for commercial purposes in accordance with terms specified with the right to sub-lease and/ or sub-license any or all parts thereof by way of Project Agreements. Article 4 Conditions Precedent` Various conditions for both the parties viz. the AAI and the SPV which are to be complied/ fulfilled before transfer. Further, there is provision with respect to payment of damages in case of delay in compliance of the above conditions and provision for termination in case of delay of more than prescribed tim....
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....rdance with the specifications and standards. Article 13 Monitoring Construction of AAI can monitor the construction work undertaken pursuant to this agreement. Article 15 Entry into Commercial service The commercial operation date ('COD') of this concession shall be the date on which conditions precedent have been satisfied and the SPV shall be entitled to commence the operation and management of the airport. Further, there is prescribed time limit to achieve COD and there is provision for termination due to delay. Article 16 Transitional arrangements All revenues, receipts, expenditure and other financial transactions for and in respect of the Airport shall be deemed to be transferred from the AAI to the SPV with effect from COD and all rights, obligations and liabilities in respect thereof shall vest exclusively in the SPV from the Transfer Date. All liabilities incurred by the AAI prior to COD, including any debt obligations and payments to the AAI or any third party, shall continue to vest in the AAI at all times. Further, it provides that the SPV shall be deemed to have assumed control over all Aeronautical Assets and Terminal Building on the C....
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.... or all parts thereof by means of an agreement,(s), which agreement(s) shall be identified as a Project Agreement, irrespective of its value and notwithstanding anything contrary contained herein. Article 26 FinanciaI Close Financial close means readiness of senior lenders to disburse funds under the financing agreements. It has been provided that within prescribed time limit, the SPV shall obtain financial close and there is termination provision in case of failure to obtain financial close. Article 27 Concession fee Monthly concession fee computed basis certain formula shall be payable by the SPV to the AAl. However, the monthly concession fee shall not be included as a part of costs for provision of aeronautical services. Further, in case of fall in prescribed passenger traffic, contract can be terminated by the SPV and upon such termination, the AAI shall be liable to pay to the SPV an amount equal to 70% of termination payment. It has been further agreed that the AAI shall not commission a new airport within a 50km radius of the airport prior to expiry of 10 years from COD. Article 28 Fees On and from COD and till the Transfer Date, the SPV has the s....
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....transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. Explanation.-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;] (b) import of services for a consideration whether or not in the course or furtherance of business; [and] (c) the activities specified in Schedule I, made or agreed to be made without a consideration [***] (d) [***] (1A) Where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supp....
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....anything other than goods is called a service. Therefore the above transaction of transfer of business will be supply of services. (iv) It is worth noting that Section 7(1A) of the CGST Act provides a reference to Schedule II of the CGST Act which provides for the classification of the underlying transaction/activity i.e. whether it qualifies as goods or services. However Schedule II is silent on the transaction undertaken by the applicant. However in Sr. No. 2 of the Notification No.12/2017 - Central Tax Rate dated June 28, 2017, provides exemption which is as under: Sr.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent) Condition 2 Chapter 99 Services by way of transfer of a going concern, as a whole or an independent part thereof. Nil Nil From the above it is clear that any transfer on a going concern is supply of service and exempted from levy of tax. Alternatively, it can be said that the transfer of business as a going concern as a whole or independent part thereof is considered as service. However, the same has been specifically exempted from the levy of GST via above mentioned notifi....
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.... various Acts suggests that it is not restricted to permanent transfer. The various definitions of the term transfer are summarized below for ready reference: Arms Act. 1959 Section 2(1Xk) Transfer with its grammatical variations and cognate expressions, includes letting on hire, lending, giving and parting with possession. Foreign Exchange Management Act 1999 Section 2(za) Transfer includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien. Prevention of Money Laundering Act, 2003 Section 2(za) Transfer includes sale, purchase, mortgage, pledge, gift, loan or any other forms of transfer of right, title, possession or lien. Corous Juris Secundum , 6th Edition as cited in 20th Century Finance Corporation Ltd (2000) 6 SCC 12 Common use of the word transfer is, to denote the passing of title in property or an interest therein from one person to another and in that sense the term means that the owner of the property delivers it to another person with the intent of passing the rights which he had in it to the latter. ....
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.... parts and features necessary to keep it in operation. Transfer of a going concern means transfer of a running business which is capable of being carried on by the purchaser as an independent business. Such transfer of business as a whole will comprise comprehensive transfer of immovable property, goods and transfer of unexecuted orders, employees, goodwill etc. It implies that the business will continue in the new hands with regularity and a nature of permanency. In the present case, the above test is satisfied because, even after transfer, concessionaire will be in position to manage, operate airport and undertake the functions as were undertaken by applicant. Moreover, there will not be any interruption in the operations of the airport on account of the underlying transaction. (xi) Now the third question arises is whether the transfer is a whole or an independent part thereof. In the present case the applicant is not transferring the entire business, however the applicant is transferring its independent unit i.e. Sardar Vallabhbhai Patel International airport. Hence, it becomes necessary to determine whether operation of the airport can be said to be independent part....
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....d (Uttarakhand AAR), internationally accepted guidelines were discussed [issued by His Majesty's Revenue & Customs (HRMC)] to treat the transfer of business as a going concern as under: o The assets must be sold as part of a 'business' as a 'Going concern'. o The purchaser intends to use the assets to carry on the same kind of business as the seller o Where only part of a business is sold it must be capable of separate operation o There must not be a series of immediately consecutive transfers. (xiv) Article 3.1.1 of the draft concession agreement provides that the Company would be given a right to carry on the airport business for a period of 50 years. On completion of the tenure of the concession period, the assets and liabilities would revert back to AAI. This would also happen on premature termination due to breach of concession agreement. Thus, it is the intention of the contract that the business so transferred is intended to be carried on with regularity and with the nature of permanency during the concession period. (xv) Attention at this stage is also invited to the international jurisprudence in this regard. ....
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....9 'land' includes benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth and also shares in or charges on the revenue or rent of village or other defined portions of territory" Section 3(26) of General Clause Act, 1897 'Immovable property' shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth" (xxii) The assessee would also like to draw the attention to term "Sale" as defined under the Immovable Property Act, 1981: Section 54 of Transfer of Property Act, 1882 defines the term "Sale" as a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. Supreme Court in the case of Kaliaperumal vs Rajagopal and anr (AIR 2009 SC 2122) has observed that 'Sale' is defined as a transfer of ownership for a price. In a sale there is an absolute transfer of all rights in the properties sold. No rights are left with the transferor. Hon'ble Bombay High Court in the case of Provident investment Co. Ltd vs Commissioner of income tax - AIR 1954 Bom 95 observ....
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....s a supply of service. It is settled law that such provisions in a taxing statute would have to be read together and harmoniously in order to understand the nature of the levy, the object and purpose of its imposition. No activity of the nature mentioned in the inclusive provision can thus be left out of the net of the tax. Once this law, in terms of the substantive provisions and the Schedule, treats the activity as supply of goods or supply of services, particularly in relation to land and building and includes a lease, then, the consideration therefor as a premium/one-time premium is a measure on which the tax is levied, assessed and recovered. Then probe into the legislation any further cannot be done. [Para 14] One is concerned here with the GST Act and the tax on supply of goods and services. It is not disputed that the position of the CIDCO for the purpose of orderly planning and development will be of no assistance in the sense while developing a new township, the objective of the planning authority is not to earn money, but to develop the area so that the purpose of setting up a township is achieved by more people wanting to live in the area in lieu of the various....
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....ncessionaire shall bear the Select Employees Cost for Joint Management period and Deemed Deputation period. The concessionaire shall pay on monthly basis the amount as indicated in the invoice raised by the applicant on the concessionaire with regard to the emoluments payable to the Select Employees. Applicant reproduces herewith the relevant definition for better understanding of clause 6.5 (i) Select Employees Cost shall mean those employees of the Authority as set forth in Schedule S (of the rank of assistant general manager and below) who are posted at the Airport by the authority and shall be deployed at the Airport for the duration of the Joint Management period and Deemed Deputation period (ii) Joint Management Period shall mean the period commencing from the COD and ending on the date which is 1(one) calendar year after the COD (iii) Deemed Deputation Period shall mean the period commencing from the expiry of the Joint Management period and ending on the date which is 2 (two) calendar years therefrom (iii) The deficit employees cost, if any, as raised upon by the concessionaire on the applicant is "pass through" i.e. only the ....
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....icant submits that though the assets are transferred for a period of 50 years which is for a substantial foreseeable future, there is no doubt that the SVP or the concessionaire can run the business as going concern Questions on which Advance Ruling is sought: 1. Whether the transfer of business by the AAI to the M/s. Adani Ahmedabad International Airport Limited be treated as Supply u/s. 7 of the Central Goods and Service Tax Act, 2017 ("CGST") viz-a-viz Gujarat State Goods and Service Tax Act, 2017 ("GSGST")? 2. Whether the transfer of business by AAI to M/s. Adani Ahmedabad International Airport Limited is treated as supply as going concern and covered in clause 4 of schedule II of CGST Act viz-a-viz GSGST? 3. Whether the transfer of business by AAI to M/s. Adani Ahmedabad International Airport Limited is covered under the Entry No. 2of the exemption notification No 12/2017 - Central Tax (Rate) dated 28-06-2017 issued u/s Section 11 of CGST Act 2017? 4. If the answer is negative, then whether GST is leviable on the transfer of Existing assets ("RAB"), Aeronautical Assets, non-aeronautical assets and Capital work in progress by AAI to the M/s. Adani Ahmedabad Inter....
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....ssions made by AAI. 21. Prior to proceeding into our discussion and findings, we take it on record that Shri Chajed, during Personal Hearing submitted that due to the Contract entered between AAI and SPV, the GST paid by AAI prior to the contract, in the course of running the business of Airport, will now, in pursuance to the said contract, be paid by SPV instead of AAI and that the subject Questions for Advance Ruling is limited to the GST liability with respect to the Business Arrangement entered between AAI and SPV vide Contract dated 14-2-20. 22. We find that the subject issue hinges on whether said business arrangement between AAI and SPV is a transfer of going concern or otherwise. Therefore, firstly, we proceed to examine if subject business arrangement entered vide subject Contract dated 14-2-20 is Transfer of Going concern or otherwise. We gather from Accounting Standard-I issued by ICAI that a fundamental accounting assumption is that of 'Going Concern' according to which "the enterprise is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the enterprise has neither the intention nor the necessity ....
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....passenger terminal building with separately identified area for domestic passengers and international passengers on the site and the land appurtenant thereto, including the kerbside and approach roads. Further we note the transfer of finances from AAI to SPV wherein all revenues, receipts, expenditure and other financial transactions for and in respect of the Airport shall be deemed to be transferred from the AAI to SPV on commercial operations date and all rights, obligations and liabilities in respect thereof shall vest exclusively in the SPV until the transfer date. We note that in pursuance to this Contract, all the existing security deposits, earnest money deposits, bank guarantees, performance securities or other like instruments for and in respect of the airport shall be released to the counter party by AAI upon the same being submitted by such counter party to the SPV within 180 days of COD. Further we find that all the liabilities arising as a result thereof of this contract shall be deemed to be the liabilities of the SPV. Further, we are of the opinion that it is not essential to transfer all assets and liabilities for a transaction to qualify ....
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....d the requisite insurance has been taken by SPV. b. We find it a condition of the said Contract, that neither AAI nor its affiliates shall commission a new airport within a 50 km radius of the subject Airport prior to the expiry of ten years from COD. This condition is a proof that the scale of business operations undertaken by SPV shall continue for a foreseeable future. c. We note that as per Section 12(3)(f) AAI Act, it is the statutory function of the AAI that it may establish and maintain hotels, restaurants and restrooms at or near the airports among its other functions. We note that this function has also been transferred to SPV. As per Section 12(3)(r) AAI Act, it is the statutory function of the AAI that it may undertake any other activity at the airports and the civil enclaves in the best commercial interests of the Authority including cargo handling, setting up of joint ventures for the discharge of any function assigned to the Authority. We have studied the subject contract entered between AAI and SPV. We find that the subject contract is a business arrangement wherein the statutory functions of AAI, which are in part but of an independent nature, have....
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....between AAI and SPV merits to be covered under transfer of going concern. Further we hold that for transfer of going concern for transfer to be effected, sale is not the only criteria. Transfer simpliciter, vide subject business arrangement, is valid enough to term subject going concern as transferred from AAI to SPV. 24. Now that we have held subject business arrangement as transfer of going concern, We now detail our findings on the Questions for which Rulings have been sought by AAI. Question 1: Whether the transfer of business by AAI to SPV be treated as Supply under Section 7 CGST? Findings: (i) We hold that in GST era, Supply as per Section 7 CGST Act is the taxable event. The first requisite for Supply to be witnessed is that there shall be a supply of Goods or Supply of services or both. Section 7 CGST defines Supply as follows: '7. (1) For the purposes of this Act, the expression "supply" includes-- (a) 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;.......................
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....public authorities; 24.3 On reading the two definitions of 'Supply' and 'Business' as defined in CGST Act, we are now faced with the task to examine if business is a service and consequently, will transfer of business be a supply of service. For examining the same, we experiment by substituting the word, ' business' in the place of the word 'service' in the definition of supply of service and find the following meaning is expressed as follows: Meaning of Supply in present context Substitution of the word 'business' in place of the word 'service' Supply includes Supply of Services, such as transfer, made or agreed to be made for a consideration by a person in the course or furtherance of business Supply includes Supply of Business, such as transfer, made or agreed to be made for a consideration by a person in the course or furtherance of business 24.4 Prima facie from reading the section 7 (supply definition), section 2(52) (goods definition), section 2(102) (services definition), section 2 (17) (business definition) CGST Act, it is not directly forthcoming if business is a service, consequently making supply of business a supply of service. For illustration, the m....
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....hall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee. Schedule II(4)(c) CGST Act reads as follows: 4(c). Transfer of business assets (c) where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless- (i) the business is transferred as a going concern to another person. 24.6 From the construction of the wordings in the said sections 18(3); 22(3) and 85(1); Schedule II(4) of CGST Act and the Rule 41(1) CGST Rule, we find that 'transfer of Business' is more of an event in pursuance to a business arrangement. 24.7 We hold that Gujarat Authority for Advance Ruling is a creature of the Statute and cannot g....
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....erations. Therefore, subject supply is Transfer of Going Concern as an independent part with respect to the said Airport. 25. Now we examine if subject supply is made for a consideration in the course or furtherance of business. We find that there are payments to be made to the AAI by SPV, as specified in the subject Contract. We hold this business arrangement has been entered with consideration involved as per the terms and conditions of the Contract. We hold that the consideration may be one time or in installments or as per the agreed terms between AAI and SPV. In this context, the payment made by the SPV to AAI includes the estimated deemed regulatory asset base, payment made by SPV towards the estimated initial non-aeronautical investments, Concession fees, all these payments are as per the terms and conditions of the contract and are the consideration to be paid by SPV to AAI for execution of the contract. 25.1 Further, business being an inclusive definition, as per Section 2 (17) CGST Act, we find it apt to interpret that the transfer of business may be in the course or furtherance of business itself. 25.2 Thus in subject case, we find i. Service Provider- ....
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.... is our subject matter and " transfer of Business Assets" as mentioned in Schedule II(4) CGST Act. We note that AAI has not ceased to be a taxable person. 26.3 On detailed reading of the subject Contract and as detailed in the aforementioned paragraphs, we find the subject business arrangement is 'transfer of going concern service'. We, thereby, find no merit to vivisect the subject Contract and examine the treatment of aeronautical assets/ non aeronautical assets/ other business assets in the Contract entered between AAI and SPV. As detailed in our findings, the substance of the Contract compels us, under GST scheme of law interpretation, to classify the Subject Business Arrangement as 'Transfer of Going concern Service'. 27. Besides the detailed findings in aforementioned paragraphs 23 and 24 of this Ruling, further facts ascertaining that subject Business Arrangement is Transfer of Going Concern Service is as follows: i. The transfer of aeronautical and non aeronautical assets by AAI to SPV, was requisite for performance of the Contract at Ahmedabad Airport. The running business transferred by AAI to SPV needs the subject assets for it to keep running. ii....
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....e the Parking. SPV has agreed and ensures that only Designated GOI Agencies are authorised to undertake the following Reserved Services, such as, CNS/ATM services, security services, meteorological services, mandatory health services, customs control, immigration services, quarantine services. With respect to general indemnity, the SPV shall indemnify designated GOI agencies. We find that proceeds from all insurance claims, except life and injury, shall be paid to SPV. The Contingency and Safety management arrangements shall be procured and ensured by the SPV. These are facts on record that subject business is transferred by AAI to SPV as going concern and SPV ensures that subject business keep running with regularity and a nature of permanency. Vide subject contract, SPV accepts and agrees to implement the Project. The Project as per Article 1 of the said Contract is defined as follows: 'Project' means the operations, management and development of the Airport in accordance with the provisions of the Agreement and includes all works, services and equipment relating to or in respect of the scope of the Project. 27.1 What we note from the said Contract is that on transfer....
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..... 28.3 We find that the spares and consumables referred to in Question 10, are those which are not covered in the subject Contract dated 14-2-20, and as AAI during Personal hearing requested to withdraw the said Question no 10 with respect to GST Tax rate, as details of goods are not available with them and further vide said letter dated 10-8-21 submitted that AAI will supply said goods to SPV on need basis and deem it supply under Section 7 CGST Act, we hold back from pronouncing a Ruling on this Question No. 10 to the subject Application, save that GST to be paid on subject proposed supply mentioned at Question no 10, as per the law. 29. We pass the Ruling: RULING Ruling on Questions raised, in seriatim: 1. The Subject Supply of 'Transfer of Going Concern service' is Supply under Section 7 CGST Act. 2. i. The subject Supply is 'Transfer of Going Concern Service'. ii. Schedule II (4) CGST Act refers to activities or transactions relating to Transfer of business assets to be treated as supply of goods or supply of services. Therefore, in present case, there arises no need to examine Schedule II(4) CGST Act. 3. The subject Supply is covered....