On March 26, 2019, Authority for Advance Ruling (Goods and Service Tax) Uttarakhand (“AAR”) passed a ruling in a matter which involved an issue whether ‘Business Transfer Agreement’ as a going concern on slump sale basis is exempted from the levy of GST in terms of serial no. 2 of the notification No. 12/2017-Central Tax(Rate) dated June 28, 2017 (“Notification”). The copy of said notification is attached for ease of reference.
Innovative Textiles Limited (“Applicant”) intended to sell its textile business to the purchaser in the form of business transfer as a going concern on slump sale basis together with all assets and liabilities. The Applicant submitted to AAR that sale of business as a going concern is exempted from levy of GST by virtue of serial no. 2 of the Notification.
AAR stated that on perusal of serial no. 2 of the Notification, the services by way of transfer of a going concern, as a whole or an independent part thereof is to be treated as supply of service and covered under chapter 99 of the Service Code (Tariff) and is exempt from GST. AAR referred to the definition of ‘business’ as provided in section 2(17) of the Central Goods and Services Tax Act, 2017 and stated that acquisition of goods/ services for commencement of business is covered under the said definition. AAR stated that:
“We observe that a transfer of a business as a going concern is the sale of a business including assets. In terms of financial transaction ‘going concern’ has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation. We further find that internationally accepted guideline (applicable to the case in hand) issued by His Majesty’s Revenue and Customs (HRMC) to treat transfer of business as a going concern are as under:
The assets must be sold as part of a ‘business’ as a ‘going concern’
The purchaser intends to use the assets to carry on the same kind of business as the seller
Where only part of a business is sold it must be capable of separate operation
There must not be a series of immediately consecutive transfers”
AAR found that the Applicant intends to sale its ongoing textile business along with all assets and liabilities to the Purchaser and such business of the Applicant is live/ operating. The purchaser has purchased the said business to carry on the same kind of business. Further there is no series of immediately consecutive transfer of said business. Hence, in view of the aforesaid, AAR observed that the applicant has supplied services by way of transfer of business as a going concern and hence as per serial no. 2 of the Notification, the same is exempted from levy of GST.
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