In re Jolarpettai Veeramuthu Sreedhar (GST AAR Tamilnadu)
The Authority for Advance Ruling, Tamil Nadu, examined an application filed under Section 97 of the CGST Act, 2017 and the corresponding provisions of the TNGST Act, 2017, seeking clarity on the GST implications of non-compete and non-solicitation fees received pursuant to a share sale transaction. The applicant was a shareholder of a company engaged in bespoke software development, whose entire shareholding was sold to two purchasers—one located outside India and one in India—along with the goodwill of the business. As part of the transaction, the applicant entered into a non-compete-cum-non-solicitation agreement, under which he agreed to refrain from competing with the business of the company sold and the businesses of the purchasers for a specified period, in consideration of a monetary payment received in foreign currency.
The applicant sought rulings on whether the place of supply of services was outside India, whether the services qualified as export of services and zero-rated supply, and whether GST was payable considering that a substantial portion of the restraint operated outside India. The applicant contended that agreeing to refrain from an act constituted a supply of service under Schedule II of the CGST Act and argued that the dominant portion of the service was rendered outside India, as the foreign purchaser operated largely overseas. Based on business data, the applicant segregated the non-compete consideration into services rendered within India and services rendered outside India, undertaking to pay GST on the domestic portion and seeking exemption for the remainder.
