GST UPDATE

Business transferred as Going concern shall be eligible for exemption under Notification No. 12/2017-Central Tax (Rate). If the transfer fails to get covered under going concern, same should be taxed as supply of goods as per Schedule II.

Case No.:WBAAR 03 of 2026-27

Authority: West Bengal Authority for Advance Ruling (New Delhi)

Name of the Applicant: Vivek Hetamsaria

Outcome:Exempt if the transfer qualifies as going concern.

Judgement Date: 09.09.2026

BRIEF FACTS OF THE CASE:

Vivek Hetamsaria proprietor of M/s Ambika Diamond (hereinafter referred to as Applicant) proposes to transfer its entire proprietorship business as a going concern to M/s Ambika Jewelvista LLP in which the proprietor is one of the partners. The transfer will include transfer of all assets and liabilities including fixed assets, closing stock, receivables, deposits, cash balances, employees, business rights and other obligations, without any consideration. Consequent to transfer, the proprietorship firm would cease to exist and the business would continue under the LLP. The applicant sought advance ruling on whether such transfer of business from the proprietorship concern to the LLP constitutes a supply under GST whether it is a supply of goods or services, where it is covered under Entry No. 2 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and if not whether GST would be leviable on transfer of existing stock, assets and other items.

QUESTION BEFORE HON’BLE AUTHORITY:

Whether the transaction of transfer of business by way of merger of two registration/distinct person would constitute supply under GST law?
Whether the transaction would amount as supply of goods or supply of services?
Whether the transaction would cover under Serial no. 2 of the Notification No. 12,2017-Central Tax (Rate) dated 28.06.2017?
If the answer to Question -3 is negative, then whether GST is leviable on the transfer of existing stock (closing stock) assets, Fixed assets etc. from proprietorship concern to the partnership concern?

BRIEF ARGUMENTS BY APPLICANT:
Petitioner submitted following contentions: -
Proposed transfer to be undertaken as on as-is-basis transaction:

Proposed transfer is intended to be undertaken as on as is basis transaction, whereby the entire business, together with all its assets, liabilities, rights, claims, employees, customers and other components necessary for continuation of business will be transferred to the partnership firm and the business of such partnership firm would continue without any interruption.
That the proposed merger/transfer would be implemented through an internal memorandum of understanding (MOU) between the two parties.

Transfer includes all present and future assets, liabilities, rights, ownership, interest:

That the pursuant to such transfer, all rights, title, ownership, interest in assets and customers together with the liabilities would stand transferred to the partnership concern as a going concern. The entire business of the proprietorship concern would thus be transferred, and the proprietorship concern would cease to exist after completion of the necessary statutory compliances and the filing of requisite returns. Thus, the present and future assets, liabilities, rights, claims and employees and business operations would be taken over by M/s Ambika Jwelvista LLP and future GST liabilities in the ordinary course of business would be discharged by the partnership concern.

Proposed transfer was structured to ensure continuity of existing business:

That the very purpose of proposed transfer is structured intentionally so as to ensure the continuity of existing business. The very basis of the proposed arrangement is that the partnership concern would continue the same business which was being carried on by the proprietorship concern prior to transfer. Applicant relies upon the decisions of various Advance Ruling Authorities dealing with transfer of business as a going concern in the case of Mr Jayesh Popat [(16/WBAAR/2022-23 dated 22.12.2022)], Airport Authority of India [GUJ/GAAR/R/46/2021], M/s SCV Sky Vision [04/AP/GST/2021 dated 12.01.2021], M/s Cosmic Ferro Alloys Limited [02/WBAAR/22-23 Dated 22.04.2022] and M/s Rajashri Foods Pvt Ltd [KAR ADRG 06 / 2018 Dated: 23.04.2018)].

Proposed transfer is covered under Supply as per Section 7:

Transaction proposed in the present case constitutes a supply within the meaning of supply as per Section 7 of CGST Act 2017 as well as the activities specified in Schedule I which are treated as supply even when made without consideration. That the proposed permanent transfer of the proprietorship concern to the partnership concern constitutes a transfer of the business in the course of furtherance of business and accordingly falls within the scope of supply.

Proposed transfer shall be treated as transfer as supply of services based on the various advance rulings:

In view of the Section 7(1A) of the CGST Act, where certain activities or transactions constitutes a supply in accordance with Section 7(1) such activities or transactions shall be treated either as supply of goods or supply of services as referred to in Schedule II. Reliance was placed upon the Advance Ruling in the applications filed by the applicants mentioned above wherein transfer has been treated as supply of services and has been held to be covered under Entry No. 2 of the Notification No. 12/2017- Central Tax (Rate), subject to the fulfilment of conditions relating to transfer as a going concern.

Proposed transaction cannot be regarded as supply of goods

That the proposed transaction cannot be regarded as a supply of goods. Section 2(52) of the CGST Act provides the definition of goods. The business itself cannot be regarded as movable property and consequently transfer of the business as a whole cannot be treated as transfer of goods. Accordingly, the transfer of the business by way of merger would constitute a supply of services. Further, in view of the definition of services as per Section 2(102), the proposed transfer by way of merger would constitute supply of services.

Transfer of business is separately governed by specific provisions relating to transfer of business as contained in GST Act:

That the provisions of CGST Act and rules themselves recognise the transfer of business as an event having legal and tax consequences. The expression “transfer of business” finds reference in Section 18(3), 22(3), Section 85 of the CGST Act. Section 22(3) specifically deals with registration where a business is transferred as a going concern, while Section 85 provides for joint and several liability of the transferor and transferee in respect of tax, interest and penalty due upto the time of transfer. Rule 41 further provides for furnishing the details of sale, merger, demerger, amalgamation, lease or transfer of business in FORM GST ITC-02 for transfer of unutilized ITC.
In continuation of above, that the statutory provisions referred to above demonstrate that transfer of business is recognized under GST law as an event arising pursuant to a business arrangement. Further, that the proposed permanent transfer constitutes a transfer of business and is therefore supply of services. The entire proprietorship concern, along with all assets, liabilities and employees is proposed to be transferred and the transferee would continue the business. Thus, the proposed transfer cannot be treated as a mere transfer of individual goods or closing stock. The closing stock and other assets form part of the business being transferred as a whole and consequently partake of the character of the transfer of business as a going concern.

Transfer of business as going concern is exempted as specifically covered by notification:

Applicant points out that Entry No. 2 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 specifically provides exemption in respect of services by way of transfer of a going concern as a whole or an independent part thereof. The rate prescribed under the said entry is NIL. Since the transaction proposed by the applicant involves transfer of the entire proprietorship business as a going concern to M/s Ambika Jewelvista LLP, hence, the transaction is squarely covered under the aforesaid exemption entry and is accordingly exempt.
Proposed transaction satisfies the essential characteristics of a transfer of a going concern. The concept of going concern has no been specifically denied under the GST Act. It is an accounting concept indicating that the business is expected to continue its operations.
That in the instant proposed transfer of business, there would be change in constitution from proprietorship to partnership having different PANs. Transferee firm would take over and manage the entire operation in the ordinary course of business as an independent business without hindrance or stoppage. Transfer would include the assets required for running the business and the employees would also be transferred so that business can continue without interruption. The applicant accordingly submits that proposed transaction clearly constitutes a transfer of business a going concern as a whole and is covered under Entry No 2 of NN 12/2017- Central Tax (Rate) dated 28.06.2017.
That the transfer is not merely confined to the transfer of closing stock or any isolated asset. Rather, all the necessary components required for its continued operation is being transferred. Employees would continue without interruption, business relationships would be preserved.
That the proposed transfer is therefore covered by Serial No 2 of Notification No 12/2017-Central Tax (Rate) dated 28.06.2017 which specifically exempts services by way of transfer of a going concern as a whole or an independent part thereof. Acc, no GST would be payable on the transfer of the business as a going concern including the assets and closing stock forming part of the business being transferred, subject to fulfilment of the applicable conditions.

FINDINGS & JUDGEMENT:

Following are the findings of the Hon’ble Advance Ruling Authority in the instant case:

In view of the facts and evidences submitted before Hon’ble Advance Ruling, it was observed that the said proposed transfer by the applicant will be of no consideration. Further, the terms and conditions of the MOU of the transfer were referred and it was observed that transferor firm i.e. proprietorship firm will cease to exist after filing all the necessary returns and all necessary compliance will be undertaken before surrendering the registration.
In view of the , there is a permanent transfer of the proprietorship concern along with all the assets as well as the liabilities of the said concern along with their employees and such transfer of a business cannot be treated as supply of goods since business cannot be said to be a movable property so as to qualify as ‘goods’ as defined in clause (52) of Section 2 of the CGST Act.
It was observed that first two questions relates to the issues transfers amount to supply under GST acts and if it is a supply of goods or services. For this provisions contained under Section 7 were referred and it was held that since the concept of “scope of supply” is an inclusive definition, it will include transfer of business even if the same is not in the course or furtherance of business.
Section 7(1A) reinforces this proposition, transfer of business is done neither in the usual course of business nor in the furtherance of business. However, by virtue of the inclusive nature of the scope of supply, transfer of business can be regarded as supply.
It was held that as in the instant case, the proposed transfer of business even if without consideration and not in the usual course of business shall be considered as supply under the provisions of the CGST Act 2017.
Thereafter, it was observed that whether the proposed transfer constitutes a supply of goods or services. It was held that, in view of Section 7(1)(c), the proposed transfer shall be treated as supply even if made without consideration. Further, Serial no. 4 of Schedule II relates to transfer of business assets.
In continuation of above, in relation to the GST law, going concern was found in Notification No. 12/2017 dated 28.06.2017 in which the services by way of transfer of a going concern as a whole or an independent part thereof was exempt.
It was found that the applicant has not furnished any documentary evidence to prove that the business is a going concern.
In the instant case it was held that if the applicant’s business fails to qualify as a going concern, the transfer of stock of goods, closing stock of assets etc shall be considered as supply of goods by virtue of Entry No. 4(c) of Schedule II and will be taxed accordingly.

Based on above observations, each question has been answered as follows:
Q-1: Whether the transaction of transfer of business by way of merger of two registration/distinct person would constitute supply under GST law?
Answer: Affirmative.
Q-2: Whether the transaction would amount as supply of goods or supply of services?
Answer: Transaction will amount as supply of services.
Q-3: Whether the transaction would cover under Serial no. 2 of the Notification No. 12,2017-Central Tax (Rate) dated 28.06.2017?
Answer: Affirmative subject to the condition that the business qualifies as going concern by all standards.
Q-4: If the answer to Question -3 is negative, then whether GST is leviable on the transfer of existing stock (closing stock) assets, Fixed assets etc. from proprietorship concern to the partnership concern?
Answer: If the applicant’s business fails to qualify as a going concern, the transfer of stock of goods, closing stock of assets etc. will be considered as supply of goods by virtue of Entry No. 4(c) of Schedule II and will be taxed according as per rate applicable for the respective goods.

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