AAR Maharashtra – Applicability of GST on Transfer of Business involving Merger of GST Registrations

• Crystal Crop Protection Ltd. (‘the Applicant’) obtained two GST registrations in the state of Maharashtra for availing an incentive scheme, but later found that separate GST registrations were not required.
• The Applicant wanted to merge both the registrations by transfer of business and continue with one GST registration
• The Applicant sought an Advance Ruling with respect to applicability of GST provisions on the transfer of business by way of merger of two GST registrations/ distinct persons

2. If yes, whether the transaction would constitute ‘supply of goods’ or ‘supply of services’?

3. If the transaction qualifies as ‘supply of services’, whether the said transaction would get covered under the serial no. 2 of Notification no. 12/2017-C.T.(R) dated 28.06.2017 (‘the exemption notification for services’) and, therefore, not liable to GST?

4. Whether the transferor registration can file Form GST ITC-02 and transfer unutilized input tax credit (‘ITC’) to the transferee registration?

1. The Transaction would constitute a ‘supply’ in light of the following provisions:

•  As per Section 7(1) of CGST Act 2017, supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, lease, rental or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
• As per serial no. 1 of Schedule I to the CGST Act, the following activities shall be treated as supply even if made without consideration:

1. Permanent transfer or disposal of business assets where ITC has been availed on such assets
2. Supply of goods and services between distinct persons when made in course or furtherance of              business

2.  The Transaction would constitute a ‘supply of goods’ in light of the following:

• ‘Going concern’ is not separately defined under the GST Law. However, under Section 18(3) of CGST Act, a change in constitution of business is essential to consider the transfer of business as a going concern. In the instant case, the Applicant proposes to transfer business from one registration to another registration under the same PAN and there would be no change in the constitution of business. Hence, the transaction would not qualify as a ‘transfer of business as going concern to another person’
• As per entry no. 4(c) of Schedule II of CGST Act, where any person ceases to be a taxable person, any goods forming part of business assets are deemed as ‘supply’ unless the business is transferred as a going concern. As discussed above, the transaction is not a transfer of business as a going concern and, hence, shall not be covered under aforesaid exception. Accordingly, the goods forming part of business would be taxable under GST as ‘supply of goods’

3. As the said transaction is ‘supply of goods’, same shall not get covered under serial no. 2 of the exemption notification for services

4. Since there is no change in the constitution of the business, provisions related to transfer of ITC as per section 18(3) would not apply and the Applicant shall not be allowed to transfer the ITC from the transferor registration to the transferee registration by filing of Form ITC-02