TMI Blog2021 (8) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... tatements if there are doubts about it's ability to continue as a going concern. Conditions that lead to substantial doubt about going concern include the following like negative trends in operating results, continuous losses from one period to next, loan defaults, lawsuit against a company, and denial of credit by suppliers. Moreover, transfer of a going concern means transfer of a running business which is capable of being carried on by the purchaser as an independent business. Such transfer of business as a whole will comprise comprehensive transfer of immovable property, goods and transfer of unexecuted orders, employees, goodwill etc., The transaction of 'transfer of business' in the instant case does not fit in the definition of a 'going concern' in the context of exclusion of liabilities - the entry at serial No.2 of the chapter 99 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 prescribing the rate of tax for 'the services by way of transfer of a going concern as a whole or an independent part there of', as NIL rated, is not applicable to the present case. - AAR No. 04/AP/GST/2021 - - - Dated:- 12-1-2021 - SRI. D. RAME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; dated December 27th, 2018 CBTA') 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. The relevant clauses of the agreement are discussed as under:- 'Business' mean entire cable operation business and includes all rights and powers of any nature except any of the employees or liabilities. (Clause1.2); 'Excluded liabilities' to mean all debts, liabilities and obligations relating to the Business carried out on or before the closing date (March 31st, 2019) (Clause 1.5); On closing date, the Business of the applicant including all rights, title and interest in the business, assets, subscribers, linked LCOs etc. shall be sold, transferred and conveyed to ACN on a going concern basis. (Clause 3.1); None of the liabilities of any nature arising out of past ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 2017. In response, remark are received from the State Tax authorities concerned stating that no proceedings are lying pending or passed relating to the applicant on the issue, for which the Advance Ruling sought by the applicant. 5. Applicant's Interpretation of Law and Facts: 5.1. The 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' under SI.No.2 of the (Service Exemption Notification) Notification no.12/2017- CT (Rate) dated June 28th, 2017 granting exemption to services listed therein. Hence, the applicant is not liable to pay any tax in the present instance. 5.2. In the present instance, the underlying issue requires evaluation of the factum of transfer of business as a going concern to consider the same exempt from tax. Accordingly, the relevant extract of the Notification is provided hereunder: SI.No Chapter, Section, Heading, Group or Service Code (Tariff) Description of services Rate (percent) Condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinary course of business, one of which is a principal supply. A.7. As per Section 8 of the CGST Act, composite supply shall be treated as a supply of principal supply and therefore, applicable tax rate on such supply will be of the principal supply itself. Hence, it becomes important to determine as to whether Supply 1 and S upply 2 constitute a naturally bundled supply or not. A.8. The word naturally bundled' is not defined under GST law. Therefore, a reference shall be made to the erstwhile service tax law, where a similar concept of naturally bundled services prevailed. The education guide issued by CBIC explains bundled services as a bundle of service wherein an element of provision of one service is combined with an element or elements of provision of any other service. A.9. As per the Education Guide 'If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character'. It further provides following indicators to identify a natural bundle:- The perception of the consumer or the service receiver; Majorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which must be met simultaneously. Accordingly, in order to fall under SI.No.2 of service Exemption Notification, the service must be transfer of a going concern and not otherwise. B.2. The applicant submits that service exemption notification grants exemption to transfer of a 'going concern'. On perusal of the entry extracted herein above, it is relevant to note that the service Exemption notification exempts the service of transfer of business as a going concern irrespective of the fact that such transfer qualifies as a slump sale or not. B.3 The term 'going concern' is not defined under the CGST Act or rules framed there under. Thus, it is relevant to note the natural meaning of the term which is provided as under:- In Prem and Saharay's Judicial Dictionary of Words and Phrases, the term going concern' has been defined to mean 'a business that is in actual operation and working order and transfer of ownership does not interrupt running of business'. The Cambridge English Dictionary defines the term as 'if a company is sold as a going concern, it is sold when it is operating normally'; B.4 On perusal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es itself will impact the position of business being transferred as a going concern or whether any transfer of business in a running condition without interruption will qualify as a going concern. B.11. The applicant submits that non-passing off of past liabilities and employees will not render the business as not in the nature of a going concern. The parameters as laid down by several authorities discussed herein above is that 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. B.12 In other words, the most viral factor is the presence of broad casting signals, subscribers/customers, LCOs to transmit the signals at the last mile subscriber and STB devices for a cable operation business to run. Even if in few cases, the liabilities and employees do not get transferred, the businesses can independently function. In the present instance, the basic requirement to run the business is present. Various judicial precedents affirm the above v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s all rights and powers of any nature except any of the employees or liabilities .(Clause 1 2) Excluded liabilities' to mean all debts, liabilities and obligations relating to the Business carried out on or before the closing date (March 31st, 2019) (Clause 1.5); None of the liabilities of any nature arising out of past business relations shall be transferred including but not limited to future payments, claims due and payable, tax liabilities, statutory liabilities(Clause 3.2); On perusal of the above facts, it is noticed that the applicant's Business as MSO sought to be sold is in functioning state and the transaction by virtue of the Business Transfer Agreement contemplates the sale of business to the purchaser, except any of the employees or liabilities and the purchaser intends to continue the same business. The term 'going concern' is defined nowhere in the CGST Act. Hence, the term is taken in its common parlance as used in trade. The running business, when sold in its entirety or a branch of the business, it is considered a going concern in lock, stock and barrel. Going concern is not included in the GAAP (Generally Accepted Accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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