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04 May 2020

GST on transfer of business as a going concern

Entry no. 2 of NN12-2017-CT(Rate) dated 28.06.2017, amended vide various notifications, exempt supply of following services:

Services by way of transfer of a going concern, as a whole or an independent part thereof.

Recently in the matter of Re: Rajeev Bansal & Sudarshan Mittal cited in (2020) 116 taxmann.com 158 (AAR)- UTTARAKHAND, Authority for Advance Ruling held that Transfer of Business of construction of residential/commercial complexes for further selling shall be exempt as services of transfer of going concern.

Facts of the case are as follows: The Firm (hereinafter "the applicant") is carrying on the business of constructing residential/commercial complexes and selling thereof. The firm was formed for constructing and selling a residential/commercial building at village Manoharpur Hardwar. M/s Ronav Infrastructure engaged in the same business, approached the applicant to take over the incomplete project.

The applicant entered into an agreement with the buyer for transfer of business as a "going concern" consisting of land, incomplete flats and approved map. A separate sale deed was executed for transfer of flats as required under the state law.

The term "business" has been defined in sub clause (17) of Section 2 of the GST Act and the relevant clause id provided hereunder:

"(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

Means the acquisition of goods/services for commencement of business is covered under the said definition. In terms of financial transaction 'going concern' has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation.

From the definition of Business, the Authority for Advance Ruling has found that acquisition of goods/services for commencement of business is covered under the definition of 'business'. Transfer of going concern in a simple way can be described as transfer of running business which is capable of being carried on by the purchaser as an independent business. It was further found that internationally accepted guidelines issued by His Majesty's Revenue & Customs (HMRC) to treat transfer of business as going concern are as under:

  • The assets must be sold as a part of a 'business' or 'going concern'
  • The purchaser intends to use the assets to carry on the same kind of business as the seller
  • Where only part of a business is sold it must be capable of separate operation
  • There must not be series of immediately consecutive transfers

Further on perusal of the sale deed, it was found that the applicant has sold the under-construction building, as a whole, with its all assets and transfer the rights of the same to the buyer including the approved map from the competent authority. The buyer has purchased the under-construction building/business to carry on the same kind of business as the purchaser themselves engaged in constructing residential/commercial complexes and selling thereof. Further, as on date it was found that there is no series of immediately consecutive transfers of the said business.

Conclusion

Transfer of Business of construction of residential/commercial complexes for further selling shall be treated as a going concern and is exempted from GST as on date in terms of NN 12/2017-CT (R) dated 28.06.2017