2022 (5) TMI 181 - AAR - GST

Classification of supply - sale as a going concern - transfer of the business of the CRF unit - supply of goods or supply of services or supply of goods and services? - Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 - HELD THAT - In the instant case, admittedly the applicant has entered into an agreement which inter alia involves transfer of goods forming part of the assets of the business. In a standalone manner, such transfer shall be treated as supply of goods in terms of clause (a) of Entry No. 4 of Schedule II - the applicant intends to sell his entire CRF unit where the purchaser agrees to take over the assets as well as the liabilities of the said CRF unit along with the employees and their benefits. Such transfer of a unit of a business cannot be treated as supply of goods since business cannot be said to be a movable property so as to qualify as goods as defined in clause (52) of section 2 of the GST Act. Further, anything other than goods, money and securities falls within the meaning of services as defined in clause (102) of section 2 of the GST Act. To qualify as a going concern , the business must not have intention or necessity of liquidation or of curtailing materially the scale of the operations . In this context, it is mentioned that the applicant has not furnished any documentary evidences from the auditor with regard to the entity's ability to continue in operation for the foreseeable future‟ in absence of which we are unable to conclude that the applicant has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations. The transaction of transfer of business unit of the applicant involved in the instant shall be treated as a supply of services - transaction would be covered under Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 subject to fulfillment of the conditions to qualify as a going concern.

Summary

Issues Involved:
1. Whether the transaction would amount to supply of goods, supply of services, or supply of goods and services.
2. Whether the transaction would be covered under Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Issue-wise Detailed Analysis:

1. Whether the transaction would amount to supply of goods, supply of services, or supply of goods and services:

The applicant, engaged in manufacturing Ferro alloys and Cold Rolled Formed Sections, intends to sell its CRF unit as a whole, including transferring all assets and liabilities, for a lump sum consideration. The applicant argues that this transaction is a transfer of business as a going concern, which should be considered a supply of service under section 7 of the GST Act. The applicant supports this with references to various clauses in the Business Transfer Agreement (BTA) and relevant case laws, including the Delhi High Court ruling in Indo Rama Textile Limited and the Supreme Court ruling in Allahabad Bank Vs. ARC Holding.

The Authority observed that the applicant intends to sell the entire CRF unit where the purchaser agrees to take over all assets, liabilities, and employees. The Authority noted that such a transfer cannot be treated as a supply of goods since a business is not movable property and thus falls under the definition of 'services' as per section 2(102) of the GST Act.

2. Whether the transaction would be covered under Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017:

The applicant contends that the transaction qualifies for exemption under Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which covers services of transfer of a going concern, as a whole or independent part thereof, at a 'NIL' rate of GST. The applicant's argument is supported by Advance Rulings from the Karnataka and Gujarat Authorities for Advance Ruling, which held similar transactions as transfer of a going concern, thereby qualifying for the exemption.

The Authority scrutinized the BTA clauses and found that the purchaser would continue the business with the current employees and that the seller agreed not to engage in competing activities. These clauses indicate the business's continuity, supporting the applicant's claim that the transaction is a transfer of a going concern.

However, the Authority noted the absence of documentary evidence from the auditor regarding the entity's ability to continue operations for the foreseeable future, which is a key condition to qualify as a going concern.

Ruling:

(i) The transaction of transfer of the business unit of the applicant involved in the instant case shall be treated as a supply of services.

(ii) The transaction would be covered under Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, subject to the fulfillment of the conditions to qualify as a going concern.