GST applicability on transfer of business in part as going concern
by ReinHeads Team | Oct 5, 2021
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GST applicability on transfer of business as a going concern
- Airport Authority of India (‘AAI/the Applicant’) vide bidding process proposed to transfer the right for operation, management, and development of Sardar Vallabhai Patel Airport (‘the Airport’) to Adani Enterprises Limited (‘the Concessionaire’) for a lease period (‘concession/lease period’) of 50 years. The Concessionaire planned to form Special Purpose Vehicle (‘SPV’) for executing the said activities under the lease period
- The Concessionaire agreed to pay consideration to AAI on following accounts:
- Towards investment made by the AAI in Aeronautical and non-Aeronautical assets
- Re-imbursement of salaries and other cost paid to employees of AAI for a certain period as specified in the subject Contract
- Monthly concession fee during the concession period
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| Issues before the Authority for Advance Ruling (‘AAR’) |
| 1. Whether the transfer of business in part by AAI to the Concessioner be treated as supply u/s 7 of the CGST Act, 2017 (‘the CGST Act’)?
2. Whether the proposed transaction is covered under clause 4 of schedule II of the CGST Act?
3. Whether the proposed transaction is exempt vide entry no 2 of the exemption Notification No. 12/2017 – Central Tax (Rate) dated 28 June 2017 (‘the Notification’)? |
| Discussion & Ruling |
- For a transaction to become supply under GST, the proposed transaction should be a supply of goods/service made for consideration in the course or furtherance of business. The said transaction is supply of services on account of the following:
- Business is not goods as it is not a movable property as per the definition of goods under GST
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- As per definition of services under GST, anything other than goods is treated as services. Therefore, transaction of transfer of business shall be supply of services under GST
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- In the given transaction, payments to be made from the SPV to AAI which can be one time or in instalments as per the agreed terms between AAI and SPV are consideration for the supply
- As per definition of business under GST, ‘transfer of business’ itself should be interpreted as in the course or furtherance of business
- Schedule II(4) of the CGST Act stipulates whether the transactions with respect to transfer of business assets to be treated as supply of goods and services. No parallel can be drawn between the proposed transaction i.e., ‘transfer of business as going concern’ and ‘transfer of business assets’. Further, a registered person ceases to be taxable person where assets are transferred under Schedule (II)4 of the CGST Act, whereas in the given transaction AAI shall remain taxable person as only part of business is getting transferred and other business are not transferred. Therefore, in present case, there arises no need to examine Schedule II(4) of the CGST Act
- Further, proposed transaction is a transfer of going concern of an independent part of the business because:
- Transfer of going concern means transfer of a running business which is capable of being carried on by the transferee without any hindrance for a foreseeable period
- AAI is transferring running business of the Airport for the lease period of 50 years along with all the assets belonging to the Airport that are necessary for continuing the business in future. Further, AAI is transferring part of the business and it is not essential to transfer all assets and liabilities for a transaction to qualify for a ‘transfer of business’
- AAI has not ceased to be a registered person under the GST laws after this transfer but continues its other operations. Therefore, the proposed transaction is a transfer of going concern as an independent part with respect to the Airport business
- Nature and obligations on part of SPV reflects the underlying principle that the transfer of business with respect to the Airport will be a running business, and in effect is transfer of a going concern
- For transfer of going concern to be effected, sale is not the only criteria. Transfer simpliciter, vide proposed transaction, is valid enough to term subject going concern as transferred from AAI to SPV
- As the proposed transaction is transfer of business as a going concern of an independent part of the business, it shall be exempt under entry no. 2 of the Notification
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