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2022 (7) TMI 642 - AAR - GSTClassification of supply - transfer of business by the Airport Authority of India to the M/s. Adani Lucknow International Airport Limited - supply as going concern or not - clause 4 of schedule II of CGST Act viz-a-viz UPGST - Entry No. 2 of the exemption notification No 12/2017 - Central Tax (Rate) dated 28-06-2017 issued u/s Section 11 of CGST Act 2017 - levy of GST on the transfer of Existing assets ( RAB ), Aeronautical Assets, non-aeronautical assets and Capital work in progress - concession fees paid by M/s. Adani Lucknow International Airport Limited to M/s. Airports Authority of India be treated as consideration for transfer of business or not - levy of GST on Monthly/Annual concession fees charged by the Applicant on the M/s. Adani Lucknow International Airport Limited - levy of GST on the invoice raised by the Applicant for reimbursement of the salary/ staff cost on M/s. Adani Lucknow International Airport Limited - reimbursement claimed of Municipal tax, Property Tax and Water Charges by the Applicant from M/s. Adani Lucknow International Airport Limited - rate of tax - requirement of reversal in accordance with section 17 (2) / (3) of CGST Act viz-a-viz UPGST Act. HELD THAT - As per sec. 2(17)(d) of the CGST Act, 2017, business includes supply or acquisition of goods including capital goods and services in connection with commencement or closure of business - transfer of assets during transfer of business is included in the definition of business - the activity of transfer of business is in the nature of supply. Whether the transfer of business by Airports Authority of India to M/s. Adani Lucknow International Airport Limited is treated as supply as going concern and covered in clause 4 of schedule II of CGST Act viz-a-viz UPGST? - HELD THAT - In the present case, there is transfer of business for operation, management and development of the Chaudhary Charan Sungh International Airport, Lucknow (hereinafter referred as CCSI Airport) to SPV for a period of 50 years as per clause 3.1.1 of the concession agreement. Accordingly, we find that under this business arrangement, there is clear cut provision for continuance of business for the foreseeable future. As per Article 16.2 and 16.3 of the agreement, the SPV shall assume control of all Aeronautical Assets, Non Aeronautical assets and Terminal Building on the commercial operation date (hereinafter referred as COD'). Further, we find that as per Article 16.1.1 of the agreement, all revenues, receipts, expenditure and other financial transactions for and in respect of the Airport shall be deemed to be transferred from the AAI to SPV on COD and all rights, obligations and liabilities in respect thereof shall vest exclusively in the SPV until the transfer date - it is not essential to transfer all assets and liabilities against a transaction to qualify for a 'transfer of business. That is to say, that even if some assets are retained by the AAI, and the SPV after such takeover carries out subject business activities without any obstruction then it shall qualify to be a transfer of a business. The business arrangement between AAI and SPV vide Concession Agreement dated 14.02.2020 is squarely covered under transfer of going concern. Schedule II (4) CGST Act stipulates whether the transactions with respect to 'Transfer of Business Assets' to be treated as supply of Goods or supply of services. Having gone through the subject Contract, we find the subject business arrangement is 'transfer of going concern'. As such, we find no merit to vivisect the subject Contract and examine the treatment of aeronautical assets/ non aeronautical assets/ other business assets in the Contract entered between AAI and SPV - As such, the transfer of business by Airports Authority of India to SPV is transfer of a 'going concern' and the same is not covered in clause 4 of schedule II of CGST Act. Whether the transfer of business by M/s. Airports Authority of India to M/s. Adani Lucknow International Airport Limited is covered under the Entry No. 2 of the exemption notification No 12/2017 - Central Tax (Rate) dated 28-06-2017 issued u/s Section 11 of CGST Act 2017? - HELD THAT - In terms of Sec. 2(52) of CGST Act, 2017, goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply - to be called as goods, it has to be movable property. In case of the judgment given by Andhra Pradesh High Court in case of M/S. PARADISE FOOD VERSUS THE STATE OF TELANGANA, REP. BY SECRETARY, REVENUE (CT) , SECRETARIAT, SAIFABAD, HYDERABAD, AND 2 OTHERS 2017 (5) TMI 127 - ANDHRA PRADESH HIGH COURT in the context of VAT Law, it was held that the business is not movable property and is, therefore, not goods. As business cannot be said to be movable, transfer of business cannot be said to be a transfer of goods. The transfer of business by M/s. Airports Authority of India to M/s. Adani Lucknow International Airport Limited is squarely covered under the Entry No. 2 of the exemption notification No 12/2017 - Central Tax (Rate) dated 28-06-2017 issued u/s Section 11 of CGST Act 2017. Whether the concession fees paid by M/s. Adani Lucknow International Airport Limited to M/s. Airports Authority of India be treated as consideration for transfer of business? - HELD THAT - Consideration for transfer of business may be as per the terms and conditions of the Contract and there is no restriction on consideration being upfront/ one time/ in instalments. Concession fees is payable by SPV to AAI during the concession period, calculated on a formula based on passenger footfall. The same is part of consideration for transfer of business assets. Whether GST is applicable on Monthly/Annual concession fees charged by the Applicant on the M/s. Adani Lucknow International Airport Limited? If yes at what rate? - HELD THAT - The monthly/annual concession fees is also part of consideration for transfer of business assets and exempted from GST vide entry no. 2 of Notification No. 12/2017-CT(R) dated 28.06.2017. Whether GST is leviable on the invoice raised by the Applicant for reimbursement of the salary/ staff cost on M/s. Adani Lucknow International Airport Limited ? If yes at what rate? - HELD THAT - A Simple purview of the points of agreement clearly establishes that payment of salary to the staff (in this case Select Employees) is not the responsibility of the recipient of this service, rather it is the sole responsibility of the AAI to pay emoluments to their Staff. Para 6.5.5 (ii) absolves the Adani Lucknow International Airport Limited (SPV) from paying emoluments to the manpower which is engaged in providing their services in operation of the airport and this manpower can demand or and will receive their emoluments from the AAI only. And para 6.5.5 (iii) makes it imperative upon the recipient of service to pay interest to the Authority at a rate equal to 2% (two percent) above the Bank Rate in case of delay in payment of reimbursement to AAI. Hence this is not case where payment of emoluments to AAI is a part of transfer of business as a going concern, rather it is the supply of manpower services by AAI to SPV. It is amply clear that Select Employees may exercise their choice whether they wish to join the new entity or not, and only upon accepting the offer of employment and joining the new entity, they become a part of the transfer of business as a going concern. Moreover only upon accepting the employment offers, they cease to be employees of the AAI and those who do not accept the offer will not be the part of the transfer of going concern - the deemed deputation period is not a one way road to transfer of business as a going concern, because the employees of AAI may opt or may not opt for employment under the SPV and there may be circumstances in which they do not receive employment offers or they continue their services with the AAI and in this condition they will be redeployed by the AAI and removed from the airport which will be managed and operated by the SPV. Thus there is no case for exemption on the reimbursement of emolument of employees to the AAI as services of manpower supply is provided by one distinct entity to another distinct entity where transfer of business as a going concern is not a precondition nor this supply of manpower services is a corollary to the agreement for transfer of business for the operations management and development of the airport - it appears that reimbursement of cost of emoluments of employees is a consideration for supply of manpower service and not for supply of transfer of business as a going concern and hence taxable @ 18%. Whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the Applicant from M/s. Adani Lucknow International Airport Limited? - If yes at what rate? - HELD THAT - The issue of reimbursement of municipal tax, property tax and water charges has arisen in pursuance to the terms of Concession Agreement dated 14-2-20 and Supply of Transfer of Going concern Service' is exempt from GST - The re- imbursement of cost is also part of consideration for 'Supply of Transfer of Going concern Service' as such is exempt from GST. Whether any reversal is required in accordance with section 17 (2) / (3) of CGST Act viz-a-viz UPGST Act? - HELD THAT - If any person is transferring the business as a going concern, then the same will be treated as an exempted supply - Further, as per sec. 17 read with rule 42 of CGST Rules, 2017, in case any registered person is having any exempted supplies, then ITC pertaining to such exempted supplies shall be reversed proportionately.
Issues Involved:
1. Whether the transfer of business by the Airport Authority of India (AAI) to M/s. Adani Lucknow International Airport Limited (ALIAL) is treated as a supply under Section 7 of the CGST Act, 2017. 2. Whether the transfer of business is treated as a supply of a going concern and covered under clause 4 of Schedule II of the CGST Act. 3. Whether the transfer is covered under Entry No. 2 of the exemption notification No. 12/2017 - Central Tax (Rate) dated 28-06-2017. 4. If negative, whether GST is leviable on the transfer of existing assets, aeronautical assets, non-aeronautical assets, and capital work in progress. 5. Whether the transfer of assets is treated as services and its classification. 6. Whether the concession fees paid by ALIAL to AAI are treated as consideration for the transfer of business. 7. Whether GST is applicable on monthly/annual concession fees charged by AAI. 8. Whether GST is leviable on the invoice raised by AAI for reimbursement of salary/staff costs. 9. Whether GST is applicable on the reimbursement claimed for municipal tax, property tax, and water charges. 10. Whether any reversal is required in accordance with Section 17 (2)/(3) of the CGST Act. Detailed Analysis: 1. Transfer of Business as Supply under Section 7 of CGST Act: The transfer of business by AAI to ALIAL is considered a supply under Section 7 of the CGST Act. The definition of supply includes transfer, and the activity of transfer of business is covered under this definition. The transfer of assets during the transfer of business is included in the definition of business, making it a supply. 2. Transfer of Business as a Going Concern and Clause 4 of Schedule II: The term 'going concern' is not defined in the CGST Act but is understood as a business continuing in operation for the foreseeable future. The transfer of business as a going concern involves the transfer of assets and liabilities that constitute a business activity capable of being run independently. The business arrangement between AAI and ALIAL for 50 years under the Concession Agreement qualifies as a transfer of a going concern. The transfer is not covered under Clause 4 of Schedule II of the CGST Act, which deals with the transfer of business assets when a person ceases to be a taxable person. 3. Coverage under Entry No. 2 of Exemption Notification No. 12/2017: The transfer of business by AAI to ALIAL is covered under Entry No. 2 of the exemption notification No. 12/2017 - Central Tax (Rate), which exempts services by way of transfer of a going concern. The transfer of business is considered a service since it does not qualify as a transfer of goods. 4. GST on Transfer of Existing Assets: Since the transfer of business is covered under the exemption notification, there is no need to address the question of GST on the transfer of existing assets, aeronautical assets, non-aeronautical assets, and capital work in progress. 5. Classification of Transfer of Assets: The transfer of assets is part of the transfer of a going concern, and no separate ruling is required for its classification. 6. Concession Fees as Consideration for Transfer of Business: The concession fees paid by ALIAL to AAI are part of the consideration for the transfer of business assets. The fees are calculated based on passenger footfall and are considered part of the transfer of business as a going concern. 7. GST on Monthly/Annual Concession Fees: The monthly/annual concession fees charged by AAI are part of the consideration for the transfer of business assets and are exempt from GST under Entry No. 2 of the exemption notification No. 12/2017. 8. GST on Reimbursement of Salary/Staff Costs: The reimbursement of salary/staff costs by ALIAL to AAI is considered a supply of manpower services and not part of the transfer of business as a going concern. Therefore, GST is leviable at the rate of 18% (9% CGST and 9% SGST). 9. GST on Reimbursement of Municipal Tax, Property Tax, and Water Charges: The reimbursement of municipal tax, property tax, and water charges is part of the consideration for the transfer of a going concern and is exempt from GST. 10. Reversal under Section 17 (2)/(3) of CGST Act: If a person is transferring the business as a going concern, it is treated as an exempted supply. As per Section 17 read with Rule 42 of the CGST Rules, 2017, the Input Tax Credit (ITC) pertaining to such exempted supplies shall be reversed proportionately. Ruling: 1. The transfer of business by AAI to ALIAL is treated as a supply under Section 7 of the CGST Act. 2. The transfer is treated as a supply of a going concern and is not covered under Clause 4 of Schedule II of the CGST Act. 3. The transfer is covered under Entry No. 2 of the exemption notification No. 12/2017. 4. No ruling required on GST leviability on the transfer of existing assets. 5. No ruling required on the classification of the transfer of assets. 6. Concession fees are part of the consideration for the transfer of business. 7. No GST is applicable on monthly/annual concession fees. 8. GST is leviable at 18% on the reimbursement of salary/staff costs. 9. No GST is applicable on the reimbursement of municipal tax, property tax, and water charges. 10. Reversal is required in accordance with Section 17 (2)/(3) of the CGST Act.
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