TMI Blog2018 (12) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant - apparently the applicant has directed the seller for transference of these business to MSPL and MPMPL. It is reiterated and clear that the role of the applicant is very crucial in respect of both the agreements as discussed above and without the directions of the applicant, the second agreement could not have materialized and further, in respect of all the terms of the second agreement as detailed above the applicant is an active party in the agreement as well and he and his directors have an active role in all aspects of the agreement, starting from terms relating to parties to agreement, transfer of the BP and PM business, Price and Termination which is very clear from these details of agreement - this role of the applicant is clearly a service covered in para 5 (e) of Schedule-II of Section 7 of the CGST Act, wherein the applicant is doing the act of giving direction to the seller for transfer of BP and PM businesses to MSPL and MP MPL respectively as per his directions and terms and conditions agreeable to him due to special authority in this regard, vested in him through the first agreement dated 21.06.2018 between him and the seller. Levy of GST on notional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the GST Act . 02 FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- A. STATEMENT OF FACTS HAVING A BEARING ON THE QUESTIONS RAISED 1. The Merck Life Science Private Limited (hereinafter referred to as the Applicant ) has entered into business transfer agreement dated 21 June 2018 with Merck Limited (seller) wherein the seller has agreed to sell, transfer, convey, assign and deliver to the applicant or to any affiliates as directed by applicant for the BPL business which would be transferred as a slump sale on going concern basis. BPL business means BP business, LS Business and PM business as going concern as outlined in Definitions and Interpretations . Refer Exhibit 1 for details of agreements. Pursuant to the above, another agreement exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of reference: ....Subject to the terms and conditions set forth herein, the Seller hereby agrees to sell, transfer, convey, assign and deliver (as the case may be) to the purchaser (or to an affiliate of the purchasers, as directed by the purchaser) hereby agrees to purchase, take assignment and deliver of all of the sellers right, obligations, title and interest, liabilities, claims and demands whatsoever at law and in equity, in and to the BPL, business on the closing date on a slump sale basis as going concern... On perusal of above, it is evident that the purchaser (i.e. in the present case applicant) can direct to the seller for transfer of BPL business (i.e. BP business, PM business and LS business) as going concern on slump sale basis to its affiliates. As per Schedule 12 - Definition and Interpretation of business transfer agreement, the term Affiliates means in relation to any party, any subsidiary or any parent company of that party and any subsidiary of any such parent companies, in each case from time to time. MSPL and MPMPL are fellow subsidiary (affiliates) of MLSPL, all three entities are subsidiaries of the Company s ultimate holding company, Mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e GST Act, activities specified in Schedule I to be treated as supply which are made or agreed to be made without a consideration as extracted below for reference: ...SCHEDULE I [See section 71 ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION 1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. 2. Supply of goods or Services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business In the instant scenario, the applicant and MSPL/ MPMPL are related parties in terms of explanation to section 15 of GST Act. Hence, any supply of goods or services between the applicant and MSPL/MPMPL even without consideration can be considered as supply under GST Act. However, as discussed in foregoing para, there were no activity between the applicant and MSPL/ MPMPL and there is no business consideration between the applicant and MSPL/MPMPL . Hence, an independent direction by applicant to Seller for transferring a business to a related party would not qualify between the applicant and MSPL/MPMPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the furtherance of his business. On perusal Of above provision, it is evident that in the present case also MSPL and MPMPL are registered person under GST Act in the state of Maharashtra. Further, the transaction would be used or is intended to be used in the course or furtherance of business by MSPL and MPMPL. Hence, both MSPL and MPMPL are eligible to claim input tax credit on GST charged by the applicant. Therefore, in view of above, the applicant may adopt to value the proposed transaction as per the second proviso to Rule 28 of CGST Rules. As per said proviso, the value of the transaction may be adopted as percentage of business transfer agreement. D. APPLICANT S UNDERSTANDING As discussed in above Para, there were no activity between the applicant and MSPL/NIPMPL ; the applicant has directed to the Seller for transfer of business vide agreement for transfer of BP and PM business but there is no activity of supply of goods or services undertaken between the applicant and MSPL/ MPMPL ; Consideration would be received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the instant case, it is important to note that the initial business transfer agreement between the seller and the applicant was executed on 21 June 2018 which authorizes the applicant or any of its affiliate to buy the BPL business on the closing date. On the very same date, another agreement was executed simultaneously between the seller, the appllant, MSPL and MPMPL for selling the respective business on a slump sale basis. This clearly highlights that the applicant and its affiliates, as directed/ identified by the applicant, had the right to buy out the respective BPL business under the initial agreement which was respectively identified and sold business wise in the second agreement. Hence, it is evident from above facts that the intention Was always to undertake the slump sale of BPL business to the applicant, MSPL and MPMPL independently. In the present case, a two- step approach was followed with regards to the documentation. It is also important to note that the entire transaction is between the group companies. Had there been single agreement executed between all parties then this question would not have raised before your goodself. Hence the substance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said authority by the affiliates. It is the right that he has acquired from the affiliates, which he is relinquishing. In case of facilitation service, an existing right is relinquished in favor of the affiliates. Here, there is no Such existing right with the applicant. It is merely an agreement for administrative convenience of all the parties involved. All the parties are involved from the very beginning and have consensus ad idem. Hence, no economic benefits accrues to the Applicant in whatsoever form. Thus, no service provided by the applicant in the course or furtherance of business. C. Slump sale is not in course or furtherance of business Historically there were disputes as to whether the slump sale is goods or not. It was consistently held that the slump sale is not goods because it is not done in course of the business. In the case of M/s. Paradise Food Court, vs The State of Telangana, on 18 April, 2017 (2017-VIL-238-AP) = 2017 (5) TMI 127 - ANDHRA PRADESH HIGH COURT , the Hon ble High Court of Andhra Pradesh held that slump sale if not goods and cannot be sold in the course of trade or business. Relevant extract is cited below for your reference; .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provider as per the definition of the business . Pecuniary benefit is immediate, direct or indirect and co-relatable. But the economic benefit is a wider term and it includes the pecuniary benefit as mentioned in the definition of business and also the future benefits, indirect and not co-relatable. For example if the holding company provides service to the subsidiary company without consideration, then it fulfills the condition that the activity is not for any pecuniary benefits and hence fulfills the definition of Business as per GST law and hence said service is in course or furtherance of business. However, strictly speaking, the said service helps the subsidiary company to grow its business which results into increased outflow of dividend income to the Holding company. Hence the economic benefits accrues to the service provider in the long run but it is in distant future and also the said economic benefit is not co-relatable with the service provided by the holding company. In view of the above, if an economic benefit accrues in future and is not co-relatable with the service provided, then it would be treated as provision of service without any consideration. Such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no legal construction to declare slump sale as supply of service by inferences or implications or indirect interpretation. That is not the object and purpose of the construct of Schedule-II. The settled rule of legal construction is to presume the legislature to have meant what they have actually expressed. The intent of the parliament must be deduced from the language used. It is a settled principle of law, that question of law has to be understood in the context in which it is framed and not out of context, Further, we understand that it is a settled position of law that if there is any ambiguity in the interpretation of law for the purpose of imposition of any levy, the benefit of doubt should go in favor of the assesse. In the case of Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company Ors, 2007 (S.C.) (ITS-336-SC-2018-CUST) = 2018 (7) TMI 1826 - SUPREME COURT OF INDIA , the constitutional bench of Supreme Court analysed issue in detail and held that ambiguity or doubtful fiscal statute must receive a construction in the favor of the assessee. Thus, in the present case also, in absence in clarity of taxability, GST Act should be interpreted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. The Government of India vide exemption Notification No. 12/2017- Central Tax (Rate) dated 28 th June, 2017 has exempted Services by way of transfer of going concern. as a whole or independent part thereof. The above notification fails to have any relevance on taxability of slump sale because if there is no levy on slump sale, then it cannot be treated as taxable service. It is evident in law from a harmonious reading and interpretation of law and the context in which the Goods and Service Tax law is framed as apparent from the object and purpose of the legislation, that slump sale is neither goods nor services. In view of the above it may be stated that if the levy is not there, the question of exemption does not apply. It is a cardinal principle of law that it has to be interpreted as a whole and an effort has to be made so that there is no contradiction in the different provisions of the law. The law has to be interpreted harmoniously so that there is a cohesive meaning emanates from Such interpretation and also serves the object and purpose of law without any contradiction or ambiguity. In the light of the above, it may be submitted that the purport of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litated transaction of slump sale to its affiliates. The slump sale was directly undertaken by the seller to MSPL and MPMPL. Only for administrative purpose two sets of agreement was entered. Hence the applicant is not qualify as an intermediary and not liable to pay tax. F. Direction by the applicant for facilitation of any non-service (in the present case slump sale). will not qualify as supply of service. It is arguable that slump sale is neither supply of goods nor supply of service. In the instant scenario also, the applicant s direction to its seller is neither supply of goods nor will qualify as supply of service under GST Act. If the intention of legislature was to levy tax on facilitation of non-service (i.e. slump sale) then they would have made specific inclusion in the definition of Service , Supply or Schedule II of GST Act. In this regard, it may be mentioned that although security is excluded from the definition of service , facilitating or arranging transaction in securities is included in the definition of Service through an explanation to section 2 (102) in the proposed amendment in the GST Act for the purpose of removal of doubts wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualify under Schedule Il; the transaction is also revenue neutral in the hands of the government. Without prejudice to above, in case above transactions are considered as taxable by your goodself, then the open market value should be the value declared in the invoice. Further, as the transaction would be used or is intended to be used in the course or furtherance Of business by MSPL and MPMPL Hence, both MSPL and MP MPL are eligible to claim full input tax Credit on GST charged by the applicant. Hence the discussion on the valuation would just be an academic exercise. We Merck Life Science Private Limited ( Company or we or Applicant or us ), are registered under the Goods and Service Tax Act, 2017, vide the registration no. 27AACCM1226B1Z4. This is with reference to final hearing for advance ruling vide application no. 62 dated 02nd August, 2018 attended on 19th September, 2018. In continuation to the additional submission made by us 19th September, 2018, we are hereby submitting summary of final discussion held before your goodself:- The applicant and its affiliates entered in two agreements with the seller for slump sale of BPL business. In the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substance direction of applicant to seller for slump sale of BPL business doesn t qualify as a service since the affiliates mentioned in the first agreement were already party to the agreement. Therefore, it is outside the purview of GST law. Further as required by your goodself, find below the computation of stamp duty discharged under the agreement along with legal provision for your ready reference: Business Transfer Agreement (BTA) Overall consideration payable under the BTA: INR 10,520,000,000/- Stamp duty payable: Article reference under Schedule I of the Maharashtra Stamp Act Description of head under which stamp duty is payable Amount of stamp duty Article 5(h)(A)(iv)(b) Agreement which creates any obligation, right or interest and having monetary value above INR 1,000,000 0.2% of overall consideration under the BTA = 0.2% of INR 10,520,000,000 = INR 21,040,000 Article 35 Indemnity provision INR 500 Article 5(h)(B) Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,78,15,00,000 1,35,63,000 0 1,35,63,000 1550 2,71,27,550 MPMPL 80,84,00,000 16,16,800 0 16,16,800 1550 32,35,150 TOTAL 10,52,00,00,000 2,10,40,400 600 1,51,79,800 3,100 3,62,23,500 03. CONTENTION AS PER THE CONCERNED OFFICER The submission, as reproduced verbatim, could be seen thus- In this regard, applicant (M/s Merck Life Science Pvt. Ltd.) had sought Advance Ruling in respect of question number (c),(e) and (g) of point No. 4 at Para B i.e. Applicant s eligibility to file present Advance Ruling Application. In light of the facts as per (c), (e) and (g) of point No. 4 at Para B, applicant wishes to seek clarification on the following matters from the Authority for Advance Ruling established under GST Act: 1. Whether applicant s direction to the seller (directed in agreement dated 21 June 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten contentions as per details given in their application. Jurisdictional Officer, Sh. M S A Khan, Supdt., Division - V,CGST, Navi Mumbai Commissionerate appeared and stated that they have made written submissions. 05. OBSERVATIONS We have gone through the facts of the case as per ARA, oral and written submissions made by the Applicant as well as the jurisdictional officer. We find that the Applicant has entered into a Business Transfer Agreement with Merck Ltd (seller) wherein the seller has agreed to sell, transfer, convey, assign and deliver to the applicant or to any affiliates as directed by the applicant for the BPL business which would be transferred as a slump sale on a going concern basis. The Applicant has stated that BPL business means BP business, LS business and PM business as going concern as outlined in Definitions and Interpretations. In view of the above agreement, it is stated -- --One agreement has been executed between the seller, M/s. Merck Ltd and M/S Merck Specialities Pvt.Ltd. (MSPL) for transfer of BP business to MSPL by and from seller. -- Second agreement has been entered into between the seller (M/S Merck Ltd) and and M/s Merck Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule 1, made or agreed to be made without a consideration, and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. Here we are required to refer to Schedule-I and Schedule-Il as well attached to Section 7 to examine the question as raised by the applicant. From the details submitted before us we find that in respect of transfer of BP business to MSPL and PM business to MPMPL by the seller apparently it is seen and also claimed in the application by the applicant is that the applicant is only directing the seller to transfer these businesses to MSPL and MPMPL and this direction is as per the first agreement between the seller and the applicant. Thus we find that apparently the applicant has directed the seller for transference of these business to MSPL and MPMPL as above. We find that this act of direction on the part of the applicant to be a supply or not would have to be examined only in respect of it being a service under the scope of para 5(e) of Schedule-II in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shall be discharged by payment of the consideration by the Purchaser to the Seller in accordance with clause 3 (Price) 2. PRICE 3.1 Aggregate Price : The aggregate price for the BPL business is ten billion, five hundred twenty million rupees (INR 10,520,000,000) (BPL Business Price) 3.2 The BPL business Price has been determined based on the value of the BPL business as a whole and shall be paid as a lump sum consideration for transfer of the BPI- business by the Seller to the Purchaser on a going concern basis. No values have been assigned to and of the individual assets or Assumed Liabilities comprised in the BPL business. The Parties agree that the determination of the value of any asset for the purpose of payment of stamp duty, registration fees, or other similar Taxes shall not be regarded as assignment of values to individual assets. 7. PAYMENTS ON CLOSING 7.1 Purchaser Payments At closing, the Purchaser shall pay to the Seller in accordance with clause 22.1 (Payments made by the Purchaser) (a) the BPL business price; plus (b) the Determined VAT to the extent it is due as at closing. 8. TERMINATION 8.1 Seller and Purchaser opti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced above it is very apparent that the agreement for sale and purchase is between the seller and the applicant and sale to the affiliate of the applicant can only be as per the directions of the applicant and thus the act of direction of the applicant is very crucial and further sale to affiliates cannot take place without the direction of the applicant. The crucial and central position of the applicant is also very clear from the other terms of the agreement in respect of price, payments on closing, termination and indemnification clauses of the agreement as referred and reproduced above. Further, with respect to the applicant being the central pillar of these slump sale business transfer agreement would also be clear from the relevant paras of the consequent agreement to the first agreement referred above. The consequent agreement i.e Agreement for transfer of the BP and PM businesses is also dated 21.06.2018. We reproduce the relevant paras of the same which are as under:- AGREEMENTFOR THE TRANSFER OF THE BP AND PM BUSINESSES dated 21 June 2018 PARTIES: (1) MERCK LTD., a company incorporated under the provisions of the Companies Act, 1956, havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mutual covenants herein Merck 1 herby directs Seller, as permitted under the Business Transfer Agreement to transfer, convey, assign and deliver (as the case may be); (a) The BP business directly to Merck 2, and Merck 2 herby agrees to take assignment and delivery of, and accept, observe, perform, and discharge, all of the rights, obligations, title and interest, liabilities, claims and demands whatsoever at law and in equity, in and to the BP Business, as a going concern on a Slump Sale basis, simultaneously with the BTA Closing; and (b) The PM business directly to Merck 3, and Merck 3 herby agrees to take assignment and delivery of, and accept, observe, perform, and discharge, all of the rights, Obligations, title and interest, liabilities, claims and demands whatsoever at law and in equity, in and to the PM Business, as a going concern on a Slump Sale basis, simultaneously with the BTA Closing; and 3. PRICE 3.1 The Parties agree that the purchase price to be paid to Seller pursuant to clause 3.1 (Aggregate Price) of the Business Transfer Agreement shall be paid by Merck 1, Merck 2 and Merck 3 as follows:- (a) Merck 1 shall, pursuant to and in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the applicant, the second agreement could not have materialized and further, in respect of all the terms of the second agreement as detailed above the applicant is an active party in the agreement as well and he and his directors have an active role in all aspects of the agreement, starting from terms relating to parties to agreement, transfer of the BP and PM business, Price and Termination which is very clear from these details of agreement reproduced above. Thus we clearly find that this role of the applicant is clearly a service covered in para 5 (e) of Schedule-II of Section 7 of the CGST Act, wherein the applicant is doing the act of giving direction to the seller for transfer of BP and PM businesses to MSPL and MP MPL respectively as per his directions and terms and conditions agreeable to him due to special authority in this regard, vested in him through the first agreement dated 21.06.2018 between him and the seller. Now we proceed to Question No. 2 raised by the applicant which is as under:- Question 2:- if the answer to the above question is affirmative then as the parties are related, even in absence of the actual consideration does the applicant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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