TMI Blog2022 (7) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... Adani Lucknow International Airport Limited - rate of tax - requirement of reversal in accordance with section 17 (2) / (3) of CGST Act viz-a-viz UPGST Act. HELD THAT:- As per sec. 2(17)(d) of the CGST Act, 2017, business includes supply or acquisition of goods including capital goods and services in connection with commencement or closure of business - transfer of assets during transfer of business is included in the definition of business - the activity of transfer of business is in the nature of supply. Whether the transfer of business by Airports Authority of India to M/s. Adani Lucknow International Airport Limited is treated as supply as going concern and covered in clause 4 of schedule II of CGST Act viz-a-viz UPGST? - HELD THAT:- In the present case, there is transfer of business for operation, management and development of the Chaudhary Charan Sungh International Airport, Lucknow (hereinafter referred as CCSI Airport) to SPV for a period of 50 years as per clause 3.1.1 of the concession agreement. Accordingly, we find that under this business arrangement, there is clear cut provision for continuance of business for the foreseeable future. As per Article 16.2 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desh High Court in case of M/S. PARADISE FOOD VERSUS THE STATE OF TELANGANA, REP. BY SECRETARY, REVENUE (CT) , SECRETARIAT, SAIFABAD, HYDERABAD, AND 2 OTHERS [ 2017 (5) TMI 127 - ANDHRA PRADESH HIGH COURT] in the context of VAT Law, it was held that the business is not movable property and is, therefore, not goods. As business cannot be said to be movable, transfer of business cannot be said to be a transfer of goods. The transfer of business by M/s. Airports Authority of India to M/s. Adani Lucknow International Airport Limited is squarely covered under the Entry No. 2 of the exemption notification No 12/2017 - Central Tax (Rate) dated 28-06-2017 issued u/s Section 11 of CGST Act 2017. Whether the concession fees paid by M/s. Adani Lucknow International Airport Limited to M/s. Airports Authority of India be treated as consideration for transfer of business? - HELD THAT:- Consideration for transfer of business may be as per the terms and conditions of the Contract and there is no restriction on consideration being upfront/ one time/ in instalments. Concession fees is payable by SPV to AAI during the concession period, calculated on a formula based on passenger footfall. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port which will be managed and operated by the SPV. Thus there is no case for exemption on the reimbursement of emolument of employees to the AAI as services of manpower supply is provided by one distinct entity to another distinct entity where transfer of business as a going concern is not a precondition nor this supply of manpower services is a corollary to the agreement for transfer of business for the operations management and development of the airport - it appears that reimbursement of cost of emoluments of employees is a consideration for supply of manpower service and not for supply of transfer of business as a going concern and hence taxable @ 18%. Whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the Applicant from M/s. Adani Lucknow International Airport Limited? - If yes at what rate? - HELD THAT:- The issue of reimbursement of municipal tax, property tax and water charges has arisen in pursuance to the terms of Concession Agreement dated 14-2-20 and Supply of Transfer of Going concern Service' is exempt from GST - The re- imbursement of cost is also part of consideration for 'Supply of Transfer of Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de air safety services and search and rescue, facilities in co-ordination with other agencies; Establish and maintain hotels, restaurants and restrooms at or near the airports; Establish warehouses and cargo complexes at the airports for the storage or processing of goods; Arrange for postal, money exchange, insurance and telephone facilities for the use of passengers and other persons at the airports and civil enclaves; Regulate and control the plying of vehicles, and the entry and exit of passengers and visitors, in the airports and civil enclaves with due regard to the security and protocol functions of the Government of India; Develop and provide consultancy, construction or management services, and undertake operations in India and abroad in relation to airports, air navigation services, ground aids and safety services or any facilities thereat; Establish and manage heliports and airstrips; Provide such transport facility as are, in the opinion of the Authority, necessary to the passengers travelling by air; Take all such steps as may be necessary or convenient for, or may be incidental to, the exercise of any power or the discharge of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucknow International Airport Limited? If yes at what rate? (8) Whether GST is leviable on the invoice raised by the Applicant for reimbursement of the salary/ staff cost on M/s. Adani Lucknow International Airport Limited ? If yes at what rate? (9) Whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the Applicant from M/s. Adani Lucknow International Airport Limited? If yes at what rate? (10) Whether any reversal is required in accordance with section 17 (2) / (3) of CGST Act viz-a-viz UPGST Act? 4. The applicant has submitted statement of relevant facts as under- (1) In the pursuance of Section 12A of AAI Act, applicant has decided to invite bids for undertaking the operations, management and development of airport on a public private partnership basis to bring efficiency in service delivery, expertise, enterprise and professionalism and to harness necessary investment. Airport has been defined in Article 1 clause 1.1 of the concession agreement as under: means Chaudhary Charan Singh International Airport located at the Lucknow, and includes civil, mechanical and electrical works, the Terminal Buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schedule B, and in conformity with the specification and standards set forth in Schedule C, and in accordance with the Applicable laws and Applicable permits; (b) operations, maintenance and management of the Airport in accordance with the provisions of this Agreement, Applicable Laws and Applicable permits (c) development, operation and maintenance of city Side, in accordance with the provisions of this Agreement, and, in particular, Schedule A, Schedule B and Schedule C; and (d) performance and fulfillment of all other obligations of the concessionaire and matters incidental thereto or necessary for the performance of any or all of the obligations of the Concessionaire under this Agreement, in accordance with the provisions of this Agreement, Applicable Laws and Applicable permits. (9) The terms project and projects assets is defined in clause 1.1 of Article 1 of the concession agreement as under- Project means the operations, management and development of the Airport in accordance with the provisions of this agreement , and includes all works, services and equipment relating to or in respect of the scope of the project. Project Assets mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oice raised by applicant towards emoluments of the select employees as per clause 6.5.5 of the Concession Agreement. Monthly concession Fee during the concession period shall be paid to the applicant calculated as under: (Per Passenger Fee for international Passengers * International Passenger Throughput for that month) + (Per Passenger Fee for Domestic Passengers * Domestic Passenger Throughout for that month) The monthly concession fee is calculated as per Clause 27.1.1 of the concession agreement and monthly concession is subject to revision of per passenger fee as per Clause 27.3 of the concession agreement. Monthly Concession Fee as consideration for granting lease right of land, building and the immovable assets, as per Clause 10.2.2 of the Concession Agreement. (11) In the present case as explained above, it can be said that by the underlying business of operation, management and development of the airport which is getting carried out by the applicant will be undertaken by the Concessionaire. Thus, in common parlance it can be said that present transaction amount to transfer of business from the applicant to the Concessionaire. (12) As per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever Schedule 11 is silent on the transaction undertaken by the applicant. (19) However in Sr. No. 2 of the Notification No.12/2017 - Central Tax Rate dated June 28, 2017, provides exemption which is as under: In exercise ..., hereby exempts the intra-State supply of services of description as specified in column (3) of the Table below from so much of the central tax leviable thereon under sub-section (1) of section 9 of the said Act, as is in excess of the said tax calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:- Sr.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent) Condition 2 Chapter 99 Services by way of transfer of a going concern, as a whole or an independent part thereof. Nil Nil From the above it is clear that any trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try. It is settled law that the words shall be interpreted with its literal meaning. (25) clause 16 of the agreement reflects that there is transfer of assets, liabilities, rights etc. 16.1 Transfer of Finances All revenues, receipts, expenditure and other financial transactions for and in respect of the airport shall be deemed to be transferred from the authority to the concessionaire with effect from 0000 (zero zero zero zero) hours on COD and all rights, obligations and liabilities in respect thereof shall vest exclusively in the concessionaire from that hour and until the Transfer Date. All liabilities incurred by the Authority prior to COD, including any debt obligations and payments to the Authority or any third party, shall continue to vest in the Authority at all times, and the Authority shall, indemnify, defend, save and hold harmless the concessionaire against any and all suits, proceedings, actions, demands and claims for any loss, damage, cost and expense of whatever kind and nature under or in connection with any Novated contracts or the Non Novated contracts arising before the COD. Provided that the authority shall not be liable for any individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court [Refer State of Andhra Pradesh Anr. vs M/s. RashtriyaIspat Nigam Ltd. (Appeal (civil) 31 of 1991) 1 Bharat Sanchar Nigam Ltd. vs UOI [2006] 3 STT 245(SC) While dealing as to what constitute a transaction for the transfer of the right to use the goods the Supreme Court laid down certain attributes which must be present in a transaction. One of the attributes was that for the period during which the transferee has such legal right, it has to be the exclusion to the transferor - this is the necessary concomitant of the plain language of thestatute - viz. a transfer of the right to use and not merely a licence to use the goods. Indus Towers Ltd. vs Deputy Commissioner of Commercial Taxes, Enforcement 1, Bangalore and Others [[2012] 56 VST 369 (Kar)] In the context of transfer of right to use goods, the High Court held that what is important is that the legal right transferred to use the goods in favour of a person should not get affected during the period of contract by permitting another person for similar use. From the above, it can be inferred that the transfer in entry 2 of exemption Notification includes temporary transfers also. (27) N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port can be said to be independent part of a going concern of the AAI. (34) The Lucknow airport of the applicant is the independent part of the applicant. However, rights to operate, manage and maintain the airport will be transferred. We understand that the Airport is capable of operating as an independent unit. The operation of the airport can generate revenue. Hence, it can be said that the airport is an independent part of a going concern of the applicant. (35) The applicant relies on following pronouncements- (i) The Karnatka Authority for Advance Ruling in case of M/s Rajashri Foods Pvt. Ltd. (Karnataka AAR), held that the activity of transfer of a going concern constitutes a supply of service. The ruling further held that the transaction of transfer of one of the units of the Applicant as a going concern is covered under Sr. No.2 of the Notification No.12/2017 Central Tax (Rate) dated June 28, subject to the condition that the unit is a going concern (ii) advance ruling decision rendered in case of M/s. Innovative textiles ltd (Uttarakhand AAR), internationally accepted guidelines were discussed [issued by His Majesty's Revenue Customs (HRMC)] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (40) Monthly/ annual concession fees paid by the concessionaire to the Applicant consideration for granting lease right of land, building and the immovable assets. (41) Applicant would like to draw your attention to Schedule III wherein activities or transactions which shall be treated neither as a supply of goods nor supply of services. Sale of land and subject to clause (b) of paragraph 5 of schedule II, sale of building Hence sale of land is neither a supply of goods nor service and hence not covered under the ambit of GST. (42) Land though explicitly not defined in the CGST Act, 2017 viz-a-viz SGST Act, 2017 reference could be drawn from various other statutes as under: Section 3(a) of Land Acquisition Act, 1894 The expression 'land' includes benefits that arise out of land and things attached to earth or permanently fastened to anything attached to the earth Section 3(4) of Bombay Land Revenue Code, 1879 land' includes benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth and also shares in or charges on the revenue or rent of village or other defined por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said invoice is raised to cover the emoluments of the Government employees transferred under the agreement. (49) One of the consideration which concessionaire is liable to bear is for the Authority's Employees. The applicant submits that the said employees were transferred along with the business. Hence if the transfer of business is treated as transfer as going concern as just exempted vide Entry No. 2of the exemption notification No 12/2017 - Central Tax (Rate), then the said transaction also be covered by the same. (50) In the identical case the Authority for Advance Ruling of Gujarat in the case of Airport Authority of India [2021] 131 taxmann.com 249 held that the consideration for the 'Transfer of going concern service' is exempt from GST vide Entry No. 2 of Notification No. 12/2017 - Central Tax (Rate), dated 28-6-2017. Further, the issue of reimbursement of staff cost has arisen in pursuance to the terms of subject contract dated 14-2-2020 wherein the 'supply of transfer of going concern service' is exempt from GST. The contract is for 'transfer of going concern service, therefore the consideration/reimbursement of cost is exempt from GST. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation issued under the provisions of this act (v) Determination of the liability to pay tax on any goods or services or both (vii) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both within the meaning of that term. At the outset, we find that the issue raised in the application is squarely covered under Section 97(2) of the CGST Act 2017. We therefore, admit the application for consideration on merits. 10. We have gone through the submissions made by the applicant and have examined the same. We observe that the applicant has sought advance ruling on the following questions- (1) Whether the transfer of business by the Airport Authority of India to the M/s. Adani Lucknow International Airport Limited be treated as Supply u/s. 7 of the Central Goods and Service Tax Act, 2017 ( CGST') viz-a-viz Uttar Pradesh State Goods and Service Tax Act, 2017 ( UPGST')? (2) Whether the transfer of business by Airports Authority of India to M/s. Adani Lucknow International Airport Limited is treated as supply as going concern and covered in clause 4 of schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or furtherance of business. 11.3 As per sec. 2(17)(d) of the CGST Act, 2017, business includes supply or acquisition of goods including capital goods and services in connection with commencement or closure of business. 11.4 Hence, transfer of assets during transfer of business is included in the definition of business. 11.5 As such, the activity of transfer of business is in the nature of supply. 12.1 Next we proceed to examine as to whether the transfer of business by Airports Authority of India to M/s. Adani Lucknow International Airport Limited is treated as supply as going concern and covered in clause 4 of schedule II of CGST Act viz-a-viz UPGST. 12.2 The term 'going concern' is not defined in CGST Act, 2017. However, Going concern is defined in AS- 1 as follows: The enterprise is normally viewed as a Going Concern, that is, as continuing in operation for the foreseeable future. It is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations. 12.3 The transfer of business as a going concern has been analysed in various tax rulings as well. In the landmark ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the applicant accepted the bid of Adani Enterprise Limited and issued letter of Award dated 15.07.2019 which required Adani Enterprise Limited to execute the concession agreement through a special purpose vehicle. 12.6.4 Adani Enterprise Limited has promoted and incorporated a special purpose vehicle company as Adani Lucknow International Airport Limited (hereinafter referred as SPV). 12.6.5 A Concession Agreement dated 14.02.2020 has been entered between Airports Authority of India and Adani Lucknow International Airport Limited for Operations, Management and Development of Chaudhary Charan Sungh International Airport, Lucknow. 12.6.6 As per Article 2 of the agreement, the scope of the project shall mean the operations, management and development of the Airport covering- (a) design, development, financing, construction, up-gradation and expansion of the Airport in a phased manner (b) operations, maintenance and management of the Airport in accordance with the provisions of the Agreement, Applicable laws and Applicable Permits; (c) development, operation and maintenance of City side (d) performance and fulfilment of all other obligation of the SPV an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the existing security deposits, earnest money deposits, bank guarantees, performance securities or other like instruments for and in respect of the airport shall be released to the counter party by AAI upon the same being submitted by such counter party to the SPV within 180 days of commercial operation date. Further we find that all the liabilities arising as a result thereof of this contract shall be deemed to be the liabilities of the SPV. 12.11 Furthermore, we are of the opinion that it is not essential to transfer all assets and liabilities against a transaction to qualify for a 'transfer of business. That is to say, that even if some assets are retained by the AAI, and the SPV after such takeover carries out subject business activities without any obstruction then it shall qualify to be a transfer of a business. 12.12 We find that as per Article 16.1.1 of the Agreement, all the liabilities incurred by the AAI prior to commercial operation date including any debt obligations and payments to AAI or any third party shall continue to vest in AAI at all times. It is for the sustainability and continuity of business after transfer of business to SPV. 12.13 We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used, or made available to any person for use, for any purpose other than a purpose of the business, the usage or making available of such goods is a supply of services; (c) where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless- (i) the business is transferred as a going concern to another person; or (ii) the business is carried on by a personal representative who is deemed to be a taxable person. 12.18 The para 4(a) is in respect of transfer or disposal of goods forming part of the assets of a business and para 4(b) is in respect of goods put to any private use or for use, other than a purpose of business and both are not applicable to the instant case. Further, the para 4(c) is applicable only when a person ceases to be a taxable person. 12.19 We find that AAI has not ceased to be a Taxable person as AAI has only transferred its Lucknow Airport business to the SPV but its other business are not transferred and for such business the AAI is a taxable pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt part thereof Nil Nil 13.3 The said notification exempts 'services by way of transfer of going concern' and in order to avail the above exemption, the following conditions shall be satisfied - (i) The transfer of business shall be transfer of a going concern. (ii) The business which is being transferred shall be transferred as a whole or independent part. 13.4 For answering the question, it is necessary to examine as to whether transfer of business is supply of goods or a service? 13.5 In terms of Sec. 2(52) of CGST Act, 2017 , goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply . 13.6 Therefore, to be called as goods, it has to be movable property. In case of the judgment given by Andhra Pradesh High Court in case of Paradise Food Court v. State of Telangana 2017 VIL 238 AP in the context of VAT Law, it was held that the business is not movable property and is, therefore, not goods. As business canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T is applicable on Monthly/Annual concession fees charged by the Applicant on the M/s. Adani Lucknow International Airport Limited? If yes at what rate? The monthly/annual concession fees is also part of consideration for transfer of business assets and exempted from GST vide entry no. 2 of Notification No. 12/2017-CT(R) dated 28.06.2017. 18.1 The next question of the applicant is as to whether GST is leviable on the invoice raised by the Applicant for reimbursement of the salary/ staff cost on M/s. Adani Lucknow International Airport Limited ? If yes at what rate? 18.2 We find that clause 6.5 of the agreement defines deployment and emoluments of the staff of the AAI in relation to new system to be adopted. Para 6.5.3 (ii) says It is clarified that the Concessionaire shall not be liable to bear any costs in respect of the Senior Personnel, rather than it shall be borne entirely by the Authority . These personnel, as per para 6.5.3(i), on the expiry of such 03 month period shall be transferred out of the airport and redeployed by the Authority. Hence in this regard there is no case of GST on payment of salary. But the para 6.5.4 says that the Concessionaire shall bear the Sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Paras of the agreement:- 6.5.6- At any time during the Joint Management Period, but no later than 90 (ninety) days from the COD, the Concessionaire shall make offers of employment ( Employment Offers') to a minimum of 60% (sixty percent) of the Select Employees. (i)- It is clarified that, in the event of reduction in the number of Select Employees in the manner set forth in Clause 6.5.1, the minimum number of Select Employees to whom Employment Offers are required to be made shall stand correspondingly reduced, with any fractions thereof rounded off to the nearest whole number. (ii)-The terms and conditions of the Employment offers shall, in terms of salary, positions, etc., be the same as the current employment terms of the Select Employees on an annual cost-to-company basis. 18.5 A perusal of above conditions clearly stipulates that the Select Employees, who are appointed and deployed by the AAI, are not part of the transfer of business as a whole till the time they are absorbed in and by the recipient SPV because their absorption in the new entity is conditional to acceptance of offers of employment by the employees of AAI. As such, the emoluments p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the airport. 18.9 In a relevant advance ruling decision No. 89/2021 dated 17.12.2021 of the Authority of Advance Ruling UP in the case of Broadcast Engineering Consultants Limited, it was held that cost of emolument when reimbursed are liable for imposing GST. 18.10 In view of the discussions above, it appears that reimbursement of cost of emoluments of employees is a consideration for supply of manpower service and not for supply of transfer of business as a going concern and hence taxable @ 18%. 19. The next question of the applicant is as to whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the Applicant from M/s. Adani Lucknow International Airport Limited? If yes at what rate? The issue of reimbursement of municipal tax, property tax and water charges has arisen in pursuance to the terms of Concession Agreement dated 14-2-20 and Supply of Transfer of Going concern Service' is exempt from GST as discussed above. T h e re- imbursement of cost is also part of consideration for 'Supply of Transfer of Going concern Service' as such is exempt from GST. 20. The next question of the applicant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Airport Limited to M/s. Airports Authority of India be treated as consideration for transfer of business? Answer 6- No. Question 7- Whether GST is applicable on Monthly/Annual concession fees charged by the Applicant on the M/s. Adani Lucknow International Airport Limited? If yes at what rate? Answer 7- No Question 8- Whether GST is leviable on the invoice raised by the Applicant for reimbursement of the salary/ staff cost on M/s. Adani Lucknow International Airport Limited ? If yes at what rate? Answer 8 - Yes, at the rate of 18% (9 % CGST and 9% SGST). Question 9- Whether GST is applicable on the reimbursement claimed of Municipal tax, Property Tax and Water Charges by the Applicant from M/s. Adani Lucknow International Airport Limited? If yes at what rate? Answer 9- No. Question 10- Whether any reversal is required in accordance with section 17 (2) / (3) of CGST Act viz-a-viz UPGST Act? Answer 10- Yes. 22. This ruling is valid only within the jurisdiction of Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103 (2) of the CGST Act, 2017 until and unless declared void under Section 104(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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