PJ\Case Law\3576: - M/S SCV SKY VISION – AUTHORITY OF ADVANCE RULING, ANDHRA PRADESH

Citation: - AAR No. 04/AP/GST/2021 dated: 12.01.2021 Brief Facts: The applicant is a multi-system operator (MSO) and purchases digital signals from broadcasters. These signals are transmitted through satellite to receiving stations that are owned by the applicant, then further submitted to local cable operators (LCO), and then to end customers. The applicant entered into a Business Transfer Agreement to sell its cable operation business. As per the agreement all the rights, titles to and interests in the assets, businesses, subscribers, and linked LCOs would be transferred on a going concern basis. However, employees and liabilities of any nature arising out of past business relations would not be transferred including but not limited to future payments, claims due and payable, tax liabilities, and statutory liabilities. The applicant filed advance ruling in order to determine whether the transfer of business without transfer of liabilities amount to ‘going concern’ so as to be eligible for exemption under serial no. 2 of the notification no. 12/2017-Central Tax (Rate) dated 28.06.2017. Issue: Whether transfer of business without liabilities is exempt from GST? Appellant Contention: The applicant contended that- a. There are two supplies in the transfer of business: ? The transfer of goods (assets), deemed as supply of goods under clause 4(a) of Schedule II of the CGST Act, 2017 ? The transfer of business (other than goods), qualifying as supply of service. b. Since both the supplies are naturally bundled, the supply undertaken by the applicant is a composite supply, in which the supply of service is the principal supply and the supply of goods is incidental.Furthermore, the term ‘going concern’ means that at the point in time at which the description applies, the business is live or operating and has all the parts and features that are necessary to keep it operational. Thus, the transfer of business qualifies as the transfer of going concern. Accordingly, the said business transfer agreement falls under serial no. 2 of the exemption notification no. 12/2017-Central Tax (Rate) dated 28.06.2017 and is exempt from tax. d. It was submitted that non-passing off the past liabilities and employees will not render the business as not in the nature of a going concern. The concept of transfer of business as going concern does not mandate transfer of all assets and liabilities. The parties are free to choose the assets and liabilities which they wish to transfer but importantly the business must be capable of being carried on the basis of assets transferred. e. Reliance was also placed on various decisions which held that transfer of business as going concern mean transfer of running business:- • RAJASHRI FOODS PVT. LTD. [2018 (13) GSTL 221 (AAR-GST)] • INNOVATIVE TEXTILES LIMITED [2019 (24) GSTL 480 (AAR-GST) Reasoning of the Judgement: The authority after considering the facts of the case observed as follows: a. The applicant’s business will be sold in functioning state. Further, the transaction consists of the sale of business to the purchaser, excluding any of the employees or liabilities and the purchaser intends to continue the same business. b. Since ‘going concern’ is nowhere defined under GST, reference shall be drawn from common parlance, which means a running business, when sold in its entirety, in lock, stock and barrel. c. The transfer of a going concern means transfer of a running business that can be carried on by the purchaser as an independent business. Such transfer of business as a whole will comprise a comprehensive transfer of immovable property and goods, and a transfer of unexecuted orders, employees, goodwill, etc. d. Reliance is placed in judgements where it was held that an entity is transferred as a going concern when the assets and liabilities that are being transferred constitute a business activity that is capable of being run independently in the foreseeable future. e. Since, no liabilities are transferred in the said case, the transaction of the transfer of business does not fit the definition of a going concern. Hence, the exemption notification is not applicable in the said case. f. The authority held that the entry at serial no. 2 of chapter 99 prescribing the rate of tax for ‘the services by way of transfer of a going concern as a whole or an independent part thereof’ as NIL rated is not applicable to the present case. Conclusion: GST Exemption of going concern not available. Comment: Since the term ‘going concern’ has not been defined under the GST law, there is lot of ambiguity as to what constitutes a going concern. As noted in several judgements, the transfer of a business on a going concern basis has been interpreted to mean the transfer of a running business, involving the transfer of all assets, liabilities, employees, unexecuted orders, etc. In the event, if a few elements such as employees/liabilities are retained, whether the transaction still satisfies the test of transfer of business is the moot question that needs to be deliberated. It is a subjective matter that needs to be evaluated on case-by-case basis on whether the business can be carried on despite few elements are not transferred as part of the business. However, the advance ruling concluded that if liabilities are not transferred, the activity cannot be considered as “transfer of business as going concern” so as to allow benefit of exemption contained in serial no. 2 of the notification no. 12/2017-Central Tax (Rate) dated 28.06.2017.

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PJ\Case Law\3576: - M/S SCV SKY VISION – AUTHORITY OF ADVANCE RULING, ANDHRA PRADESH

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