GST Update on Permanent Transfer of Business Assets

The taxable event under GST is the supply of goods and services. Supply is defined under section 7 of Central Goods and Service Act, 2017, which shall also include activities mentioned in Schedule I and II. Schedule I covers the activities which shall be treated as supply even if no consideration is involved. This schedule covers following entry:-

"1. Permanent transfer of business assets where input tax credit has been availed on such assets".

In view of above entry, where the businessman has availed input tax credit on some assets and he subsequently transfers or disposes it off; it shall be covered in the definition of supply. Thus, the following conditions should be satisfied in order to be covered under this clause:-
• There should be transfer of business assets.
• The transfer should be permanent in nature.
• The credit should have been availed on the assets so transferred.

Further, Schedule II prescribes certain activities and states whether the same shall be treated as the supply of goods or supply of services. Clause 4 of this schedule reads as follows:-
"4. Transfer of business assets
(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;
(b) where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services;
(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—
(i) the business is transferred as a going concern to another person; or
(ii) the business is carried on by a personal representative who is deemed to be a taxable person."

The clause 4(a) of the Schedule II covers the transfer of business assets. It states that the transfer or disposal of assets should be treated as supply if the following conditions are satisfied:-
• There should be goods that form part of business assets.
• The said goods are transferred or disposed of, so that the same will no longer form part of those assets.
• The disposal should be by the businessman or on his direction.
• The disposal may be with our without consideration.

The analysis of clause 1 of Schedule I and clause 4(a) of Schedule II brings out the following:-
Schedule 1 will be applicable where there is permanent transfer of the business assets. However, schedule II covers the situation only if a part of business assets is disposed of. This is suggested by the language of the clause which states that " where goods forming part of the assets of a business". This shows that where any one or few goods out of total assets of a business are disposed of, this clause will apply. On the other hand, if all the business assets are permanently transferred, schedule I will be applicable. This implies that where a single asset is transferred, it will be treated as supply whether or not credit was taken on the same as schedule II covers the cases where it is not pre-requisite that the credit should have been availed. But the schedule I has a pre-requisite that the credit should have been availed on the assets. If the case falls under schedule I, permanent disposal without consideration will be treated as supply only if the firm had taken the credit on the same.

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GST Update on Permanent Transfer of Business Assets

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