GST is leviable on supply of goods or service and as per section 7(1) of CGST/SGST Acts, 2017 term ‘supply’ includes sale, transfer, barter, exchange, license, rental, lease or disposal made for a consideration by a person in the course or furtherance of business. Therefore, as per this definition transfer of business is clearly included under GST law, however there must be consideration. Coming to the point, the exemption has been given to transfer of business as going concern as per Entry No.2 of Notification No. 12/2017- Central Tax (Rate). It means if a person transfers his business as going concern to another, then there will not be any GST payable on such event and as per section 18 he can also transfer ITC and liability of old GST number to new GST number. Simply, a transfer of business as going concern means, transferring asset and liability to a new person. So, if on death of a taxable person, the legal heir decide to transfer the business to another or continue business as going concern, then there will be no liability for GST payment, however if legal heir decide to close down business, then he will require to pay GST on closing stock and assets.
As per Section 22 (3) of the said Acts where a business carried on by a taxable person registered under these Acts is transferred, whether on account of succession or otherwise, to another person as a going concern, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession.
Independent Running Business Divisions
It is common in the business to have separate divisions for a single business entity. A separate division is a discrete part of a business entity that may operate under the same name and legal responsibility. It is usual in the industry that a particular division of a business concern alone is sold as a whole holding the balance portion/division with the original ownership.
GST Impact on Transfer/Sale of a Business Division as a Whole
The moot question that whether transfer/sale of such a business division as a whole is liable to GST or exempt is answered by the Karnataka Authority for Advance Ruling against an application filed by M/s. Pico2femto Semiconductor Services (P) Ltd in AR No. AAR ADRG-12/2023 dated:20.03.2023. It is observed that the transaction of transfer or sale of one of the independent running business divisions as a whole, along with all the assets and liabilities of the independent business division on a going concern basis, constitutes a transaction of “supply” under Section 7 of the CGST/SGST Acts. The applicant company has entered into a business transfer agreement in writing on stamp paper of requisite value at Bengaluru with M/s Tessolve Semiconductor (P) Limited, incorporated under the Indian Companies Act, 2013. According to the applicant, in terms of the “Business Transfer Agreement or Business Sale Agreement,” it has sold the independent running business of “providing/supplying engineering services primarily relating to semi-conductor services”, along with all the assets and liabilities as a whole as a going concern
The issue raised therein was whether the transaction of transfer or sale of one of the independent running business divisions of the applicant, as a whole, along with all the assets and liabilities of the independent business division, constitutes a transaction of “supply” under Section 7 of the CGST/SGST Acts. It is held by the AAR that, SI. No. 2 of the Notification No.12/2017-Central Tax (Rate), dated 28th June, 2017 prescribes that the services by way of transfer of a going concern, as a whole or an independent part thereof attracts NIL rate of GST unconditionally. In the instant case an independent part (staffing division business) of the applicant’s business is being transferred / sold by the applicant. Hence the benefit of the said Notification is applicable to the applicant’s transaction, subject to fulfilment of the conditions of a going concern.
The AAR held that the supplier, i.e., the applicant, and the recipient/transferee of the supply are not related, and the price is the sole consideration for the supply, and thus the value of the impugned supply shall be the transaction value, which is the price actually paid or payable. The applicant, accordingly, has to arrive at the value of the supply. Thus, because the transaction is a financial service, it gets covered under SAC 997119. The rate of GST applicable to the impugned transaction is 18%.
It is also held that the time of supply of the impugned transaction has to be determined by the applicant in terms of Section 13 of the CGST/SGST Acts 2017, as the details required to determine the time of supply are not forthcoming.
However, the AAR has declined to answer the question that whether the recipient in the present transaction is eligible for input tax credit in respect of the goods received as beyond their jurisdiction since it not relates to the applicant. However, it is clear that, the applicant can transfer un-utilized ITC (Input Tax Credit) under the provisions of Section 18(3) of the CGST/SGST Act, 2017 read with rule 41 of the CGST/SGST Rules, 2017 and as such the recipient/transferee can claim and utilise the same accordingly.
Author/Blogger: Aji V. Dev, Advocate, High Court of Kerala at Aji V. Dev & Associates, Ernakulam, Kochi, available at ajivdev@yahoo.co.in/advajivdev@gmail.com/9447788404/9605586600.
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