In re Crystal Crop Protection Limited (GST AAR Maharashtra)
Question 1: – Whether the transaction of transfer of business by way of merger of two GST registrations/ distinct persons would constitute ‘supply’ under the GST law?
Answer: – Answered in the affirmative.
Question 2: – Whether the transaction of transfer of business by way of merger of two GST registrations/ distinct persons would constitute ‘supply of goods’ under the GST law?
Answer: – Answered in the affirmative.
Question 3: Whether merger between distinct persons would qualify as ‘transfer of business as going concern’ under the purview of GST Law?
Answer: – Not Answered in view of discussions made above.
Question 4: Whether the transaction of transfer of business by way of merger of two GST registrations/ distinct persons would constitute ‘supply of services’ under the GST law?
Answer: – Answered in the negative in view of discussions made above.
Question 5: If the transaction qualifies as ‘supply of services’, whether the said transaction would get covered under SI. No. 2 of the Notification no. 12/2017-Central Tax (Rated) dated 28 June 2017, and therefore not liable to GST?
Answer: – Not answered in view of answer to Question No. 4 above.
Question 6: Whether Nagpur registration can file Form GST ITC-02 and transfer unutilized credit balance to Akola registration?
Answer: – Answered in the negative.
Question 7: In case the Applicant merges the business of Akola registration, then can the Applicant claim credit balance appearing in Akola registration via Form GST ITC 02A in Nagpur registration?
Answer: – This question was not admitted at the time of admission of the application and is therefore not answered.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, MAHARASHTRA
PROCEEDINGS
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively] by M/ Crystal Crop Protection Limited, the applicant, seeking an advance ruling in respect of the following question.
1. Whether the transaction of transfer of business by way of merger of two GST registrations/ distinct persons would constitute ‘supply’ under the GST law?
2. Whether the transaction of transfer of business by way of merger of two GST registrations/ distinct persons would constitute ‘supply of goods’ under the GST law?
3. Whether merger between distinct persons would qualify as ‘transfer of business as going concern’ under the purview of GST Law?
4. Whether the transaction of transfer of business by way of merger of two GST registrations/ distinct persons would constitute ‘supply of services’ under the GST law?
5. If the transaction qualifies as ‘supply of services’, whether the said transaction would get covered under SI. No. 2 of Notification no. 12/2017-Central Tax (Rated) dated 28 June 2017, and therefore not liable to GST?
6. Whether Nagpur registration can file Form GST ITC-02 and transfer unutilized credit balance to Akola registration ?
7. In case the applicant merges the business of Akola registration, then can the Applicant claim credit balance appearing in Akola registration via Form GST ITC 02A in Nagpur registration?
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 any 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, the expression ‘GST Act’ would mean CGST Act and MGST Act.
2. FACTS AND CONTENTION – AS PER THE APPLICANT:
2.1 “Crystal Crop Protection Ltd (hereinafter referred to as ‘the Company’ or ‘Crystal’) is a trader & manufacturer of agrochemical products & registered under CGST 2017 vide Regn. No. 27AABCJ3574E2ZM in Nagpur (‘Nagpur registration’ or ‘Applicant’) & vide GST No. 27AABCJ3574E1ZN in Akola (Akola registration).
2.2 The Akola registration shifted from the earlier VAT regime to the GST regime and later on, acquired a manufacturing plant at Nagpur location. Further, as per the proviso to Section 25(2) of CGST Act (prior to amendment vide CGST Amendment Act No. 31 of 2018) the Company obtained a separate registration in Nagpur with effect from 30.11.2018.
2.3 Akola registration trades in pesticides while Nagpur registration is involved in manufacturing as well as trading of insecticides. Further, in light of an incentive scheme of the Government of Maharashtra, the Company obtained separate registration for both the locations since the newly acquired unit at Nagpur was getting covered under the incentive scheme. However, it was later found that separate registration is not a requirement under the incentive scheme & therefore wishes to merge both the registrations by way of transfer of business of Nagpur registration with Akola registration without consideration, on a going concern basis, in the following manner –
– Proposed transaction will be implemented by entering into an internal Memorandum of Understanding (MoU) between the two registrations transferring all assets and related liabilities essential to carry on the business on as is basis by which, the transferee i.e. Akola registration would undertake all future liabilities of transferor i.e. Nagpur registration.
– The factory and the premises of Nagpur registration will remain at the same location where it is currently situated.
– Nagpur registration will file Form ITC-02 to transfer the credit balance lying in its electronic credit ledger to Akola registration so that Akola registration can avail such input tax credit (ITC). Thereafter, intimation of surrender of Nagpur registration to be filed & all necessary compliance viz filing of GSTR 9/ 9C, final returns etc. shall be undertaken prior to surrender of the registration.
B. STATEMENT CONTAINING APPLICANT’S INTERPRETATION OF LAW
2.4 Whether the transaction of transfer of business by way of merger of two GST registrations/ distinct persons would constitute ‘supply’ under the GST law?
2.4.1 In the given case, all the conditions mentioned under the definition of supply as per Section 7(1) of CGST Act, between two distinct persons, are getting satisfied and accordingly transaction of transfer of business by way of merger qualifies as supply under GST.
2.5 Whether the transaction of transfer of business by way of merger of two GST registrations/ distinct persons would constitute ‘supply of goods’ under the GST law?
2.5.1 In light of the Section 7(1) of amended CGST Act & Part 4(c) of Sch.-ll, Applicant submits that, in a case of transfer of business happening on a going concern basis, there is no “supply of goods”.
2.6 Whether merger between distinct persons would qualify as ‘transfer of business as going concern’ under the purview of GST Law?
2.6.1 Since the term, ‘going concern’ is not defined in the GST legislation, applicant relies on various judicial pronouncements in this regard to understand the meaning of ‘Going Concern’ as under:=
1. In the case of State Of Tamil Nadu vs T.M.T. Drill (Private) Ltd. (1991 (082) STC 0059 Madras), it was held that for a business to be considered as sold ‘as a whole /going concern’, it is important that all assets of the business should be transferred.
2. In the case of Rajashri Foods Private Limited [KAR ADRG 06 / 2018 dated 23 April 2018], the Authority of Advance Ruling, Bangalore observed that ‘A going concern is a concept of accounting and applies to the business of the company as a whole. 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 & transfer of unexecuted orders, employees, goodwill etc.’
2.6.2 Applicant submits that if the activities of business are continuous and uninterrupted & operations are being carried out on a regular basis, then transfer of business on going concern is nothing but transfer of “running business” which is capable of being carried on by the purchaser as an independent basis.
2.6.3 Applicant will transfer the business from Nagpur registration to Akola registration on as is basis. The operations will be continuous & uninterrupted at the same location; the business is transferred to enable Applicant to continue its business from one GST number only, in Maharashtra. Applicant submits that the business from Nagpur to Akola will be transferred on going concern basis.
2.7 Whether the transaction of transfer of business by way of merger of two GST registrations/ distinct persons would constitute ‘supply of services’ under the GST law?
2.7.1 If a transfer of business happens on a going concern basis, then it does not constitute as “supply of goods” as per Sch. II. Further, Sch. II does not prescribe whether transfer of business on a going concern basis would constitute as “supply of services”. Hence, Applicant refers to definition of the term “Services” under Section 2(102) of GST Act, 2017 & submits that, since proposed transaction does not constitute supply of ‘goods’, the said transaction would constitute “supply of services’.
2.8 If the transaction qualifies as ‘supply of services’, whether the said transaction would get covered under SI. No. 2 of the Notification no. 12/2017-Central Tax (Rated) dated 28 June 2017, and therefore not liable to GST?
2.8.1 As per SI. No. 2 of Notification no. 12/2017-CT(R) dated 28 June 2017, services by way of transfer of a going concern, as a whole or an independent part thereof attracts ‘Nil’ rate of tax. Hence, transfer of business from Nagpur registration to Akola registration is on a going concern basis and accordingly the said transaction would attract Nil rate of tax.
2.8.2 Applicant relies on the Advance Ruling in the case of Shilpa Medicare Limited [AAR No. 05/AP/GST/2020 dated 24 Feb 2020], wherein it was held that transfer of business was a supply though exempted under Notification No. 12/2017-CTR dt 28.06.2017, transfer of ITC was allowed.
2.9 Whether Nagpur registration can file Form GST ITC-02 and transfer unutilized credit balance to Akola registration ?
2.9.1 Section 18 (3) of CGST Act enables a registered person to transfer ITC, on transfer of business. From a perusal of the said Section 18(3), it is seen that firstly, change in the constitution of registered persons denotes a bi-lateral transactions, involving two entities and secondly, the provision used the expressions sale, merger, de-merger, amalgamation, etc., as forms of change in constitution.
2.9.2 In relation to the first point, the Applicant submits that the terms in the provision referred above have been understood as referring to a bi-lateral transaction involving two parties with mutual assent and consideration, to be understood to include two distinct persons. Under GST Laws, a person who has obtained or is required to obtain more than one registration, whether in one State or Union Territory or more than one State or Union Territory shall, in respect of each such registration be treated as a distinct person for the purpose of the Act.
2.9.3 The present case involves merger of 2 GST registrations i.e. distinct persons by way of transfer of business of Nagpur registration to Akola registration. In this regard, it is submitted that, even under the erstwhile excise law also, registration was factory-based and each separate factory was treated as a distinctive unit. The Tribunals and Courts in the following judicial pronouncements have recognized the concept of merger of central excise registrations:-
