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2022 (12) TMI 950 - AAR - GSTLevy of GST - transfer of mobile application software - whether the impugned transfer of part of the applicant's business related to LoanFront App qualifies to be a service by way of transfer of going concern and thereby exempted or not in terms of N/N. 12/2017? - HELD THAT - The seller, engaged in the business of providing various services to the financial institutions such as Banks NBFCs, has decided to sell its business (defined in the agreement) to the buyer (a NBFC registered with RBI) on a slump sale basis. Clause 1.1(c) read with Annexure I to the agreement defines the Assests to mean the mobile application called LoanFront which includes all the related software developed for its functionality such as Domain name, LMS software, Backend API, Websites, Analytical tools and Dashboards etc., and Business Intelligence / IP related to LoanFront application. Further clause 1.1 (k) defines the liabilities to include the Gratuity of the Employees of Rs.6,90,726/-. The statement of facts conveys that the transfer of business pertains to LoanFront app sought to be sold is a fully functional part of the business and the transaction contemplates the transfer of the entire aforesaid business to a new person (WPL), who would not only enjoy a right over the assets but shall also take over the liabilities. It thus postulates that there will be a continuity of business, as the said part of business is said to be functional and is decided to be transferred as a whole to a new owner, and thus amounts to transfer of a going concern, of the said independent part of the business. Further vide SI.No 2 of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017, the said activity amounting to 'Services by way of transfer of a going concern, as a whole or an independent part thereof attracts 'Nil' rate of tax without any conditions.
Issues:
1. Applicability of GST on the transfer of mobile application software. Analysis: 1. Admissibility of the Application: The applicant sought an advance ruling on the liability to pay tax on transferring their business, specifically the "LoanFront" app. The application was found admissible under Section 97(2)(e) of the CGST Act 2017. 2. Brief Facts of the Case: The applicant planned to sell and assign the rights, source codes, and development specifications of the "LoanFront" app to their subsidiary. Post-transfer, the applicant would focus on lead generation, while the subsidiary would continue the lending business using the app. 3. Applicant's Interpretation of Law: The applicant argued that the transfer falls under the exemption for "Services by way of transfer as a going concern" as per Notification 12/2017-GST (Rate). They contended that the transfer meets the criteria for a going concern and should be exempt from GST. 4. Findings & Discussion: The authorities noted that the CGST and KGST Acts are similar and considered the applicant's submissions. The applicant intended to transfer an independent part of their business to the subsidiary, claiming it qualified as a going concern. The issue was whether this transfer qualified as a service by way of transfer of a going concern and was exempt under the relevant notification. 5. Definition of Going Concern: The concept of a going concern, not defined in the Acts, refers to a business entity expected to continue operations without liquidation or disruption. The transfer agreement between the parties confirmed the transfer of the entire functional part of the business, indicating continuity under new ownership. 6. Notification Provisions: As per Notification No. 12/2017, the transfer of a going concern, whether as a whole or an independent part, attracts a nil rate of tax. Considering the facts and legal provisions, the ruling concluded that the transfer of the "LoanFront" app qualified as a transfer of a going concern, exempt from GST. In conclusion, the ruling determined that the transfer of the independent part of the business related to the "LoanFront" app qualified as a transfer of a going concern, exempt from GST under Notification No. 12/2017-Central Tax (Rate).
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