In the realm of Goods and Services Tax (GST), the term “Transfer as a Going Concern” holds significant importance, especially when it comes to the seamless transfer of a running business. This concept involves the transfer of a business that the purchaser can independently operate, encompassing aspects like immovable property, goods, unexecuted orders, employees, and goodwill.
1. Defining “Transfer as a Going Concern”
Transfer as a going concern involves the comprehensive sale of a business, excluding mere or predominant transfers of services. It extends beyond the transfer of title in immovable property or goods, constituting a holistic transfer that may otherwise be considered a service and is thus exempted.
2. GST Treatment of “Sale of Business as a Going Concern”
According to Entry No.4 of Schedule II of the GST Act, specific activities are categorized as the supply of goods or services. Here’s a breakdown:
a. Transfer of Business Assets:
- When goods forming part of a business’s assets are transferred or disposed of, it constitutes a supply of goods.
- If goods held for business purposes are used privately or made available for non-business purposes, it is considered a supply of services.
b. Cessation of Taxable Person:
- If a taxable person ceases business, and goods form part of the assets, it’s deemed a supply of goods unless the business is transferred as a going concern.
3. GST Taxation Scenarios – A Summary:
| Situation | Levy of Taxation |
|---|---|
| Taxable person discontinues the business | Supply of goods; GST payable. Final return to be furnished. |
| Business is continued by a personal representative | Not considered a supply of goods; Personal representative deemed taxable. |
| Admission of a partner in a firm | Not considered a supply. |
| Business is transferred as a going concern | Not considered a supply of goods. Transfer of input tax credit allowed. Transferee deemed taxable. |
4. ITC Transfer and Exemptions:
Section 18(3) of the CGST Act allows the transfer of unutilized Input Tax Credit (ITC) to the buyer when a change in the constitution of a registered person occurs due to business transfer. This aligns with Rule 41 of the CGST Rules, 2017, outlining the process for ITC transfer.
5. Exemption under Notification No.12/2017-CTR:
Both scenarios, whether the business is transferred as a whole or in parts, are exempt from GST tax liability.
In conclusion, grasping the dynamics of “Transfer as a Going Concern” in GST proves crucial for businesses engaged in such transactions.