In re M/s Rajeev Bansal and Sudershan Mittal (GST AAR Uttarakhand); Advance Ruling No. 10/2019-20; 09/01/2020
Facts of the case:
1. The Applicant is a is a partnership firm engaged in the business of constructing residential/ commercial complexes and got an approval from the competent authority to construct certain numbers of residential/commercial complex in a particular place and accordingly the applicant started construction.
2. During the course of business the applicant has completed certain flats and due to some inconvenience the applicant, not able to complete the project and intended to transfer the total project to another person and for which it had entered a contract with another business entity for transfer of the project/business as a “going concern” wherein the main asset of the business is land and for sale of incomplete flats a separate sale deed was executed as required under the state law.
Matter:
1. Taxability for the activity of sale/transfer of uncompleted flats by the applicant as part of transfer of going concern ?
Findings of AAR:
2. In terms of financial transaction ‘going concern’ has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation. Thus Transfer of a going concern’ in a simple way can be describe as transfer of a running business which is capable of being carried on by the purchaser as an independent business.
3. As per internationally accepted guidelines (applicable to the case in hand) issued by His Majesty’s Revenue & Customs (HRMC) to treat transfer of business as a going concern are as under:
- The assets must be sold as part of a ‘business’ as a ‘going concern’.
- The purchaser intends to use the assets to carry on the same kind of business as the seller
- Where only part of a business is sold it must be capable of separate operation
- There must not be a series of immediately consecutive transfers
4. The applicant is carrying on the business of constructing residential/commercial complexes and selling thereof and the applicant firm come into existence particularly for the said project. As per the sale deed the applicant has sold the under-construction building, as a whole, with its all assets and transfer the rights of the same to the buyer including the approved map from the competent authority. The buyer has purchased the under-construction building/business to carry on the same kind of business as the purchaser themselves engaged in constructing residential/commercial complexes and selling thereof. And accordingly it can be concluded that the applicant has transfer the business as a going concern which is a supply of services.
5. The transfer of Business in question shall be treated as a going concern and is exempted from GST as on date in terms of serial no. 2 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended from time to time).
Author Bio
To ADD (for sake of completion) :
As is observed from 7.7.of the AAR ‘s Order (see the Full Text reported elsewhere), it has been held that, – ”the applicant HAS TRANSFER THE BUSINESS AS A GOING CONCERN” and “it may be treated as SUPPLY OF SERVICES….”
FONT (supplied)
To say the least, the conclusion reached, – despite the glaringly clumsy / incongruent wording inaptly used in the cited Notification, it appears, is founded on unsound reasoning / faulty logic. One has to await a conclusive exposition of the correct position in law, if the Order has been, as expected of, challenged by the Revenue in the possible further proceedings in the instant case or in any other like case.
OVER to…
“Going Concern”
AAR says:
“3. As per internationally accepted guidelines (applicable to the case in hand) issued by His Majesty’s Revenue & Customs (HRMC) to treat transfer of business as a going concern are as under:
The assets must be sold as part of a ‘business’ as a ‘going concern’.
THE PURCHASER INTENDS TO USE THE ASSETS TO CARRY ON THE SAME KIND OF BUSINESS AS THE SELLER Where only part of a business is sold it must be capable of separate operation.
There must not be a series of immediately consecutive transfers.”
FONT to Focus: The assets in the instant case (being the property under construction constitutes the work-in- progress , and, on completion, stock-in-trade’ to be sold. As such, it is confusing how it cannot be regarded as the assets ‘which purchaser intends TO USE ‘. If not so, the Test (in FONT) may not be regarded as satisfied; even granting that HRMC’ s guidelines needs to be taken- going across the border- as applicable to the instant case.
Further, is there not sufficient authoritative guidelines available in our country itself , to hang the coat on, for deciding the given proposition ?!
OVER to..
OFFhand
The implications of the RERA are not seen to have been addressed hence not gone into by the AAR. To one’s understanding, there are special provisions in RERA regulating the procedure to be followed by promoter in casse of a real estate project to a third party !
Any thoughts / viewpoints to share by any professional in field practice, after a detailed study of the RERA, in the interests of the ‘purchasers’ community ?!
courtesy
Excellent..