Schedule II of the CGST Act talks about activities or transactions to be treated either as a supply of good or supply of service. There are some certain activities or transaction which led to confusion whether they are supply of goods or supply of service. The matters listed out in Schedule II are primarily those which had been entangled in litigation in the earlier regime owing to their complex nature and susceptibility to double taxation.
To make it clear that which activities or transaction is either supply of goods or supply of service, the list of the matters has been provided in the Schedule II of the CGST Act
It is mentioned in Clause 4 of Schedule II of the CGST Act that transfer of business assets has been considered as supply of goods.
However, it is pertinent to mention that pursuant to Clause 4(c) of Schedule II of the CGST transfer of business as a going concern DOES NOT constitute as supply of goods.
Clause 4(c) of Schedule II of CGST Act, 2017 states that
“(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—
- the business is transferred as a going concern to another person; or
- the business is carried on by a personal representative who is deemed to be a taxable person.”
By perusal of the above clause, it is clear that since such business is excluded from the list of supply of goods. it becomes very obvious that transfer of business as a going concern is considered to be a supply of service. Therefore, the transaction of transfer of whole business as a going concern amounts to supply of service.
It is to be noted that why we are stating that transaction of transfer of whole business as a going concern amounts to supply of service, the reason behind that is the definition of Services under GST.
“As per the definition of services, anything other than goods is called a service [Section 2(102) of CGST Act, 2017”
Therefore, we can say that transaction of transfer of whole business as a going concern amounts to supply of service.
Exemption Notification: Interestingly, Ministry of Finance vide its Notification no 12/2017- Central Tax (Rate) dated 28th June 2017 has also excluded “Business as a going concern” from applicability of GST under supply of intra state services. Therefore, the GST provision is not applicable if transfer of business is transferred as a going concern to another person.
“Ministry of Finance vide its notification no 12/2017- Central Tax (Rate) dated 28th June 2017.Here “service by way of transfer of a going concern, as a whole or an independent part thereof” in serial no 2 of the said notification shall have “nil” rate of tax on such supply”
GST ON SLUMP SALE-
SLUMP SALE MEANING: Slump sale is a sale of an undertaking as a going concern. As per section 2(42C) of Income-tax Act 1961, ‘slump sale’ means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.
The main elements of a slump sale are:
- Sale of undertaking
- As a going concern
- For a lump sum condensation; and
- No separate value is assigned to individual assets and liabilities.
It is important that there is transfer of all rights and liabilities from transferor to transferee. Further, unlike in a demerger, the consideration for the slump sale is paid to the transferor company and not to its shareholders directly.
CONCLUSION: In view of the above, as Slump sale is a sale of an undertaking as a going concern, therefore, the GST provision does not apply to Slump Sale. It is to be noted that Schedule II of the CSGT Act excludes transfer of business as a going concern as supply of goods, the same shall be considered as a supply of service and GST shall be levied. Moreover, since the above notification talks about the activity of transfer of a going concern as a supply of service and the same is exempt from the purview of GST. Therefore, it shall be inferred that transfer of a going concern as a whole or a part there or transfer of business as a going concern is tax exempt under GST and transfer of business assets will have GST implications.
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