Under GST law, the concept of a “slump sale” is not explicitly defined. However, it’s crucial to understand the implications of slump sales under both GST and the Income-tax Act, 1961. This article delves into the intricacies of GST on the transfer of a business as a going concern, including exemptions and the transfer of Input Tax Credit (ITC).
Slump Sale under Income-tax Act: As per section 50B of the Income-tax Act, 1961, slump sale refers to the transfer of a whole or part of a business as a going concern, where all assets and liabilities are transferred for a lump-sum consideration without individual valuation. While this definition is specific to income tax, it has implications for GST as well.
GST Exemptions for Going Concern Transfers:
‘Services by way of transfer of a going concern, as a whole or an independent part thereof’ is exempted as per serial no. 2 of Notification No. 12/2017- Central Tax (Rate) dated 28th June, 2017.
An extract of the above said notification is reproduced below:
Such transfer of a ‘business unit’ should be on a:
a. A going concern basis,
b. Capable of running Independently,
c. All assets and liabilities related to that unit should be transferred,
d. Values should not be assigned individually to ‘Asset’.
As such transfer of an independent business unit on going concern basis (slump sale basis) would be exempt from GST.
Transfer of Input Tax Credit lying in electronic credit ledger in the books of transferor:
As per section 18(3) of CGST Act, 2017 which states that “Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.”
Rule 41 of CGST Rules, 2017 is prescribed for the transfer of input tax credit on sale, merger, amalgamation, lease or transfer of a business.
Procedure to transfer the unutilized credit from the electronic credit ledger of transferor to the electronic credit ledger of transferee:
1. Transferor has to file FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee.
2. Transferor shall also submit a copy of a certificate issued by a practicing CA or CMA certifying that the transfer of business has been done with a specific provision for the transfer of liabilities.
3. The transferee shall accept the details furnished by the transferor on common portal.
4. The unutilized credit mentioned in FORM GST ITC-02 shall be credited to the ECL of transferee.
By following this prescribed procedure, transferee would be entitled to avail and utilise ITC.
Conclusion: In conclusion, while GST law does not explicitly define “slump sale,” it is essential for businesses to understand the implications of transferring a business as a going concern under GST. The exemption provided for such transfers and the procedure for transferring unutilized ITC are critical aspects to consider during such transactions.
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Disclaimer: No part of this article shall be reproduced, copied in any material form (including e-medium) without written permission of Shivashish Karnani. The information provided is not a substitute for legal and other professional advice. This is only for academic discussions.
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