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Slump sale is a widely adopted method of business restructuring wherein certain assets and liabilities are sold as a bundle for a lump sum consideration.

While slump sale is well recognized concept under income-tax law with specific provisions regarding taxability, slump sale has not been acknowledged by erstwhile VAT law as well as current GST regime.

The nomenclature used under GST is ‘transfer of business as a going concern‘ to cover all those situations wherein running business are transferred from one taxable person to another. This term in itself is accompanied with ambiguity as the term ‘going concern’ has nowhere been defined under GST law to specify the tests which need to be qualified for considering any transfer of business as transfer on going concern basis.

While the GST law is not crystal clear on slump sale as a form of business restructuring , a reference may be made to schedule II to CGST Act, 2017 which provides that transfer of business as a going concern is not a supply of goods. Furthermore, entry number 2 in Notification No. 12/2017 – Central Tax (Rate) provides that services by way of transfer of going concern as a whole or independent part thereof is exempt from levy of GST.

While the issue of transfer of going concern is well addressed by exempting the same from levy of GST, no clarity is offered on the term ‘going concern‘ and is left to the subjective interpretation of the taxable person and authorities. There has been many cases in the past wherein the revenue has sought to tax the transfer of business at the rates applicable on individual assets and undermine the basic characteristic of slump sale transaction.

Even though the issue has remained unresolved at large but the same has been examined by Karnataka Authority for Advance Ruling in the case M/s Rajshri Foods Private Limited wherein the authorities have held that sale of a business unit for lump sum consideration is exempt from levy of GST. The authority further went to analyse that the term going concern is a concept of accounting and applies to the business of the company as a whole, transfer of going concern means transfer of a running business which is capable of being carried on by the purchaser.

Considering the wide acceptability and adoption of slump sale as method of business restructuring, it would be very critical for the industry that government offers much awaited clarity of ambiguities surrounding this method of business restructuring.

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June 2024