I have received queries from our colleagues on if a business men has transferred his business as a going concern, How can treat such transfer of business as a going concern under GST. So, I am trying to explain how to treat such transaction as a going concern and what is tax impact under GST Scenario in this article.
1.What is the meaning of the term “Transfer as a going Concern” under GST?
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, but shall not cover mere or predominant transfer of an activity comprising a service. Such sale of business as a whole will comprise comprehensive sale of immovable property, goods and transfer of unexecuted orders, employees , goodwill etc., Since the transfer in title is not merely a transfer a transfer in title of either the immovable property or goods or even both, it may amount to service and has thus been exempted.
2. How can treat “Sale of business as a going concern in GST”?
As per Entry No.4 of Schedule II of the GST Act, defining activities to be treated as supply of goods or supply of services.
| S.No. | Illustration | Whether supply of goods or service. |
| 4 | Transfer of business assets | |
| (a).Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration. | Such transfer or disposal is a supply of goods. | |
| (b). Where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or used, or made available to any person for use, for any purpose other than a purpose of the business , whether or not a consideration | Usage or making available of such goods is a supply of services. | |
| (c). Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless:- (i). the business is transferred as a going concern to another person; or (ii). The business is carried on by a personal representative who is deemed to be a taxable person | Supply of goods. |
The above mentioned provisions are reconciled and summarized in the below table:-
| S.No. | Situation | Levy of Taxation. |
| 1 | The taxable person discontinues the business and ceases to be a taxable person ( Such as in case of death, or due to losses or otherwise. | Goods forming part of the assets of the business as on the date of discontinuance shall be deemed to be supply of goods and GST shall be paid. He shall also furnish his final return under sec.45 of the GST Act,2017. |
| 2 | Business is continued by a personal representative ( in case of death). | Transfer of goods will not be considered as supply of goods; The personal representative shall be deemed to be a taxable person. |
| 3 | Admission of partner in a firm. | It will not be considered as supply. |
| 4 | Business is transferred as a going concern by the taxable person to another person (i.e. sale, merger, demerger, amalgamation, transfer of the business) with the specific provisions for transfer of liabilities. | Transfer of goods will not be considered as supply of goods, Transfer shall be allowed to transfer the input tax credit which remains unutilised in terms of Section 18(3) of the CGST Act,2017 read with rule 41 of the CGST Rules,2017. Transferee shall be considered as taxable person under the CGST Act,2017. |
As per entry no.2 of Notification No.12/2017-CTR ,”Services by way of transfer of a going concern, as a whole or independent parts thereof “ have been exempted from the GST Tax. So, It may be noted that whether the business is transferred as a whole or in independent parts thereof, both are exempt from the GST Tax Liability.
Section 18(3) of the CGST Act,2017, 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 ITC (Input Tax Credit) which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated , leased or transferred business in such manner as may be prescribed. Rule 41of CGST Rules, 2017, contains the process of transfer of ITC (Input Tax Credit) .
Karnataka Advance Ruling Committee has given ruling in the case of M/s. B. M. Industries (2019)(2)- TMI 1080 ,dated.29’th June,2018,that, “The applicant merged his proprietorship firm as a going concern with a private limited company along with the fixed assets and current assets including stocks of raw material, semi-finished and finished goods. It was observed that as a Para 4(c ) of Schedule II to the CGST Act,2017, transfer of business as a going concern is not treated a supply of goods; and thus, the same stands excluded from the scope of supply of goods; thus, it emerges that in case of merger, the applicant can transfer un-utilized ITC(Input Tax Credit) under the provisions of Section 18(3) of the CGST Act,2017 read with rule 41 of the CGST Rules,2017.
Further , in case of merger, a registered person, by filling Form GST ITC -02 electronically on common portal, can transfer un-utilized ITC (Input Tax Credit) laying in his electronic credit ledger to the transferee. Here, it is to be noted that these provisions are not applicable to un-utilized balance lying in electronic cash ledger.
CONCLUSION:
Transfer of business as a going concern has not been considered as goods under the CGST Act, 2017. It may be further be noted that services means other than goods. Thus transfer of business as a going concern has been considered as a service under the CGST Act,2017.
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