SCV SKY VISION (GST AAR ANDHRA PRADESH)

PJ\CASELAW\3570

Issue: -Whether transfer of liabilities mandatory for sale of business as ‘going concern’? Facts: - The issue involved in this appeal is that whether transfer of business except transfer of liabilities can be considered as transfer of business as going concern so as to provide benefit of exemption. The applicant, M/s. SCV Sky Vision, is engaged in cable operation business. The applicant is a Multi-System Operator (‘MSO’) and purchases digital signals from broadcasters like E-TV, Star TV Sun TV etc. These signals are transmitted through satellite to receiving stations owned by MSOs. MSOs further transmit these signals through cables to the Local Cable Operators (‘LCO’) who own their last-mile network to individual homes and customer premises. M/s. ACM Cable Private Limited CACN’/’Company’) is engaged in provision of similar services where it receives broadcasting signals arid transmits them to individual customers through LCOs ACN has entered into a ‘Business Transfer Agreement’ with the applicant (‘Sky Vision’/ Seller’). In terms of the BTA, ACN has agreed to purchase entire cable operation business of seller. All rights, title and interest in and to the business, assets, subscribers/ customers, linked LCOs will get transferred from applicant to ACN as a going concern except the liabilities which have presently arisen or will arise for the past business relationship/ earlier period and the employees. Appellant’s contention: - The learned applicant submits that the impugned business transfer undertaken in pursuance of the BTA qualifies to be ‘Services by way of transfer of a going concern, as a whole or an independent part thereof’ is covered under service exemption Notification No. 12/2017– CT (Rate), granting exemption to services listed therein. Hence, the applicant is not liable to pay any tax in the present instance. Basis the above, it is evident that such supply undertaken by the applicant is a composite supply since a single consideration is being charged for the supply in terms of clause 4.1 of the BTA and the supplies are naturally bundled in the ordinary course of business. The intent of ACN is to take over the business of seller. Transfer of goods is only incidental and undertaken to achieve this objective. Hence, transfer of business (service component) will be the principal supply of such composite supply. Hence, the transaction will be deemed as supply of service in terms of Section 8 of the CGST Act and will be exempted. Reasoning of judgment: The AAR held that the term going concern is not defined in the CGST Act, 2017 so the term is taken in its common parlance as used in trade. The transfer of business as a whole will comprise comprehensive transfer of immovable property, goods and transfer of unexecuted orders, employees, goodwill etc. The meaning of ‘going concern’ was taken on the basis of previous judicial precedents in similar instances; - Delhi High Court held in the land mark judgement of ln Re Indo Rama Textile Limited that a company is said to be transferred as going concern when the assets and liabilities being transferred constitute a business activity when the assets along with the liabilities being transferred are capable of being run independently for a foreseeable future. - The supreme court in Allahabad Bank Vs. ARC Holding concluded that if the company is sold off as a going concern', then along with the assets of the company, if there are any liabilities relevant to the business or under taking, the liabilities too are transferred. It was held that the transaction of transfer of business in the instant case does not fit in the definition of a ‘going concern' as there is no transfer of liabilities. Therefore, the benefit of exemption available for sale of business as a going concern was held to be inadmissible to the applicant. Decision: - Ruling pronounced against the applicant.Comment: - As per the provision of CGST act, the business transferred as a “going concern” is eligible for GST exemption. However, as per various judicial pronouncements, ‘transfer of business as going concern’ is effective only when all assets including the liabilities are transferred. The pleading of the applicant that as far as the business can be run from the assets transferred, it is to be considered as going concern was rejected. Hence, the person taking over the business of another person should, in the normal course as a matter of due diligence, make sure that all the tax liabilities due under GST (CGST & SGST / IGST) laws in relation to transactions made before the date of transfer is fully discharged or are transferred along with assets

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PJ\CASELAW\3570

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