In re SCV Sky Vision (GST AAR Andhra Pradesh)
Whether Sl.No.2 of the Notification No. 12/2017–Central Tax (Rate) dated June 28th, 2017 (‘Service Exemption Notification’) granting exemption to ‘Services by way of transfer of a going concern as a whole or an independent part thereof’ is applicable on the business transfer undertaken in the present instance?
it is noticed that the applicant’s Business as MSO sought to be sold is in functioning state and the transaction by virtue of the Business Transfer Agreement contemplates the sale of business to the purchaser, except any of the employees or liabilities and the purchaser intends to continue the same business.
The term ‘going concern’ is defined nowhere in the CGST Act. Hence, the term is taken in its common parlance as used in trade. The running business, when sold in its entirety or a branch of the business, it is considered a going concern in lock, stock and barrel.
Going concern is not included in the GAAP (Generally Accepted Accounting Principles) but included in the GAAS (Generally Accepted Auditing Standards). Accounting standards determine what a company disclose on its financial statements if there are doubts about it’s ability to continue as a going concern. Conditions that lead to substantial doubt about going concern include the following like negative trends in operating results, continuous losses from one period to next, loan defaults, lawsuit against a company, and denial of credit by suppliers. Moreover, 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.,
The concept of transferring a company as a ‘going concern’ was examined by the Delhi High Court in the land mark judgement of Inre Indo Rama Textile Limited (2013) 4 Comp U 141 (Del). In this case the Delhi High Court held that a company is said to be transferred as a ‘going concern’ when the assets and liabilities being transferred constitute a business activity capable of being run independently for a foreseeable future. The Supreme Court in Allahabad Bank Vs. ARC Holding AIR 2000 SC 3098 (Allahabad Bank case) held that if the company is sold off as a ‘going concern’, then along with the assets of the company, if there are any liabilities relevant to the business or under taking, the liabilities too are transferred.
In view of the judicial precedents as mentioned above it is evidently clear that the transaction of ‘transfer of business’ in the instant case does not fit in the definition of a ‘going concern’ in the context of exclusion of liabilities.
Hence, the entry at serial No.2 of the chapter 99 of the Notification No. 12/2017–Central Tax (Rate) dated 28.06.2017 prescribing the rate of tax for ‘the services by way of transfer of a going concern as a whole or an independent part there of’, as “NIL” rated, is not applicable to the present case.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, ANDHRA PRADESH
(Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub- section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017)
1. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and SGST Act, 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions.
Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the APGST Act.
2. The present application has been filed u/s 97 of the Central Goods and Services Tax Act, 2017 and AP Goods and Services Tax Act, 2017 (hereinafter referred to CGST Act and APGST Act respectively) by M/s. SCV Sky Vision (hereinafter referred to as applicant).
3. Brief Facts of the case:
