AAR: Transfer or Sale of one of the Independent Business Division on a Going Concern basis Attracts 18% GST

AAR: Transfer or Sale of one of the Independent Business Division on a Going Concern basis Attracts 18% GST

The Authority for Advance Ruling (AAR), Karnataka by its two-member bench of Dr. M.P. Prasad and Kiran T. Reddy observed that the transaction of transfer or sale of one of the independent running business divisions as a whole, along with all the assets and liabilities of the independent business division on a going concern basis, constitutes a transaction of ‘supply’ under Section 7 of the CGST/KGST Act and the rate of GST applicable on the Transaction is 18%.

In the present case, the applicant had entered into a business transfer agreement in writing on stamp paper of requisite value at Bengaluru with M/s Tessolve Semiconductor Private Limited, a private limited company incorporated under the Indian Companies Act, 2013.

The Applicant contended that according to the terms of the- Business Transfer Agreement or Business Sale Agreement, it has sold the independent running business of ‘providing/supplying engineering services primarily relating to semi-conductor services’, along with all the assets and liabilities as a whole as a going concern.

The issue that came for consideration before the bench was whether the transaction of transfer or sale of one of the independent running business divisions of the applicant, as a whole, along with all the assets and liabilities of the independent business division, constitutes a transaction of ‘supply’ under Section 7 of the CGST and SGST Acts.

The AAR observed that in the present case, the staffing business of the applicant was being transferred, which is not a movable property and thus, the said supply cannot be supply of goods. Further, anything other than goods, money and securities are services. Hence, the AAR held that in the present case, the impugned supply was not of goods, but was of supply of services.

The bench noted that in terms of entry at 4(c)(i) of Schedule II [Activities or transactions to be treated as supply of goods or supply of services] of the CGST Act, 2017, transfer of business assets amount to supply of goods unless the business is transferred as a going concern to another person, in which case it amounts to supply of service.

“Thus, the transfer/sale of the independent running business division of the Applicant as a whole, along with all the assets and liabilities of the independent business division as a going concern basis, in terms of business transfer agreement, amounts to supply of service in terms of Section 7(1)(a),” observed the bench.

The AAR noted that the supplier/the applicant, and the recipient of the supply were not related, and the price was the sole consideration for the supply, and thus the value of the impugned supply shall be the transaction value, which is the price actually paid or payable. The applicant, accordingly, must arrive at the value of the supply.

Thus, the AAR held that because the transaction is a financial service, it gets covered under SAC 997119. The rate of GST applicable to the impugned transaction is 18%.