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PJ/Case Law/2020-2021/3562

Whether transfer of an under-construction project as a going concern, is exempt under GST?
Rajeev Bansal and Sudershan Mittal (AAR Uttarakhand) 10/2019-20 dated 09.01.2020
Brief Facts:-The Applicant is a partnership firm engaged in business of constructing and selling residential and commercial complexes.The firm was constructing a residential property and had got the plan approved from the competent authority.The Applicant has entered into a business transfer agreement with another firm for transfer of the said project on a going concern basis.The main assets of the business were land, incomplete constructed flats and the approved plan. A separate sale deed was executed for transfer of flats as required under the State laws.
Issue: -Whether transfer of an under-construction project as a going concern, is exempt under GST?
Applicant Contention: -The contention of the Applicant is that since the said supply was exempt in terms of sr. no. 12 of exemption notification 12/2017 – Central Tax(Rate) dated 28.06.2017 (i.e. services by way of renting of residential dwelling for use as residence).
Reasoning of the Judgement: -The Authority observed that as per the interpretation of the judiciary the exemption should be available under sr. no. 2 of exemption notification (i.e. services by way of transfer of a going concern, as a whole or independent thereof) and not under sr. no. 12 as contended.
In addition to it the authority while going through the Sale Deed examined following points that the Premises has been sold; assets has been sold which include flats, residential floors, basement and ground floor; Building under construction was sold; and the Purchaser can use and sell the flats as per his will or construct other building / floor in the premises, but he cannot demolish the existing flats.
Definition of Business under section 2(17) of the CGST Act, includes acquisition of goods or services for commencement or closure of business and the Transfer of business as a going concern is the sale of business including assets where the term Transfer of a going concern can be described as transfer of a running business which is capable of being carried on by the purchaser as an independent business.
The Authority also referred to the Internationally accepted guidelines issued by His Majesty’s Revenue & Customs (HRMC) on transfer of business as going concern where it states that
o          assets must be sold as part of a 'business' as a 'going concern';
o          purchaser intends to use the assets to carry on same kind of business;
o          where only part of business is sold it must be capable of separate operation;
o          there must not be a series of immediately consecutive transfers.
The guidelines issued by HRMC squarely apply to the Instant case on Hand. Henceforth, the said transfer will be treated as a transfer of business on a going concern basis.
Decision: -The Authority for Advance Ruling has held that the transfer of under Construction project shall be treated as transfer of a business as a going concern and shall be exempted under sr. no. 2 of exemption notification 12/2017- Central Tax(Rate) dated 28.06.2017.
Comment: -Most of the Times we have observed that Transfer of business on a going concern basis has always been argumentative issue and subject matter of various judicial interpretations. However with the present facts and the interpretations thetransfer of under construction project do not attract GST. A same ruling was passed in case of Innovative Textile Ltd. (GST AAR Uttarakhand).
This ruling categorising the transaction of transfer of running business as a supply of service would be a nightmare for corporate's undertaking mergers and acquisitions, as it would entice higher compliance on account of GST and would also force amalgamating company for proportionate reversal of common input tax credits
 
 
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