TMI Blog2023 (1) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... he concept of going concern has been defined in Accounting Standards 1 issued by ICAI which states that a fundamental accounting assumption is that of Going Concern according to which 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 . It therefore appears that to qualify as a going concern , the business must not have intention or necessity of liquidation or of curtailing materially the scale of the operations . In this context, we like to mention that the applicant has furnished before us copy of Audit report under section 44AB of the Income-tax Act, 1961 related to the period from 01.04.2020 to 31.03.2021. However, we do not find any comments from the auditor in respect of the entity's ability to continue in operation for the foreseeable future . We are, therefore, unable to conclude that the applicant has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations. The transaction of transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant proposes to merge with the partnership firm as a going concern with all assets and liabilities to be transferred to the partnership firm and such transfer of business shall take place without any consideration. 1.3 The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application in FORM GST ARA-01: (a) Whether the transaction of transfer of business by way of merger of two registration/distinct person would constitute supply under GST Law? (b) Whether the transaction would amount as supply of goods or supply of services? (c) Whether the transaction would be covered under Entry No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017? (d) If the answer is negative, then whether GST is leviable on the transfer of existing stock (closing stock) assets, others etc. from proprietorship concern to the Partnership concern? 1.4 The aforesaid questions on which the advance rulings are sought for are found to be covered under clause (a), (b), (e) and (g) of sub-section (2) of section 97 of the GST Act. 1.5 The appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jewellers partnership firm. All future liabilities of GST, as and when arise, shall be met by transferee, in the normal course of business without any hindrances or stoppages. After the merger, M/s. Vasant Jewellers (Proprietorship Concern) shall apply for cancellation of registration as prescribed. 2.4 The aforementioned provisions have been provided to ensure that the partnership firm continues to do the same business as it was involved in before the proposed takeover. It is further stated that the very basis of the MOU has been to continue the previous business of the proprietorship concern. 2.5 The applicant contends that since tax under the GST Act is levied on supply of goods or services, it is therefore imperative to analyse whether the transfer of business qualifies as supply . The applicant, in this regard, has placed his reliance on following advance rulings: (i) In the case of Cosmic Ferro Alloys Limited [AAR No.02/WBAAR/22-23 Dated 22.04.2022], the West Bengal Authority for Advance Ruling held that the transaction of transfer of business unit of the applicant involved in the instant case shall be treated as a supply of services. (ii) In the case of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of succession or otherwise, to another person as a going concern, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession. Section 85(1) GST Act: 85. (1) Where a taxable person, liable to pay tax under this Act, transfers his business in whole or in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever, the taxable person and the person to whom the business is so transferred shall, jointly and severally, be liable wholly or to the extent of such transfer, to pay the tax, interest or any penalty due from the taxable person upto the time of such transfer, whether such tax, interest or penalty has been determined before such transfer, but has remained unpaid or is determined thereafter. Rule 41(1) GST Rules: (1) A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate) Limited (1991 (082) STC 0059 Madras), it was held that for a business to be considered as sold as a whole/going concern, it is important that all assets of the business should be transferred. The concept of transferring a company as a going concern was examined by the Delhi High Court in the landmark judgement of Indo Rama Textile Ltd (2013) 4 Comp 141 (Del). In this case Delhi High Court held that a company is said to be transferred as a going concern when the assets and liabilities being transferred constitute a business activity capable of being run independently for foreseeable future. The Supreme Court in Allahabad bank versus ARC holding AIR 2000 SC 3098 (Allahabad Bank case) held that if a company sold off as a going concern then along with the assets of the company if there are any liability relevant to the business or undertaking the liabilities to are transferred. 2.10 The applicant finally submits that consequent to transfer of business by way of merger, the proprietorship firm M/s. Vasant Jewellers shall cease to exist and it s all present and future assets, liabilities, rights, claims, employees, businesses, etc., shall be taken over by M/s Vas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, such transfer of business cannot be treated as supply of goods since business cannot be said to be a movable property so as to qualify as goods as defined in clause (52) of section 2 of the GST Act. Further, anything other than goods, money and securities falls within the meaning of services as defined in clause (102) of section 2 of the GST Act. 4.4 The applicant, in support of his contentions that the instant transfer of his business unit shall be treated as a supply of services, has referred following advance rulings: a. Advance Ruling No. KAR ADRG 06 / 2018 dated 23rd April 2018 by the Karnataka Authority for Advance Ruling in the case of Rajashri Foods Pvt. Ltd; b. Advance Ruling No. GUJ/GAAR/R/46/2021 dated: 27-08-2021 by the Gujrat Authority for Advance Ruling in the case of Airport Authority of India; c. Advance Ruling No. AAR No.02/WBAAR/22-23 dated 22.04.2022 by the West Bengal Authority for Advance Ruling in the case of Cosmic Ferro Alloys Limited. 4.5 In the matter of Rajashri Foods Pvt Ltd (Advance Ruling No. KAR ADRG 06 / 2018 dated 23rd April 2018), the Karnataka Authority for Advance Ruling held that the transaction of transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of Innovative Textiles Ltd, the Uttarakhand Authority for Advance Ruling (Ruling No. 20/2018-19 dated 26.03.2019) has observed that a transfer of a business as a going concern is the sale of a business including assets. In terms of financial transaction 'going concern' has the meaning that at the point in time to which the description applies, the business is live or operating and has all parts and features necessary to keep it in operation. 4.11 In the case of Indo Rama Textile Limited (2013) 4 Comp LJ 141 (Del), as referred by the applicant, the concept of transferring a company as a 'going concern' was examined by the Delhi High court and in Para 27 of the said judgement, the Hon ble Court has observed as follows: Statement on Standard Auditing Practices (SAP) 16, Going Concern'', issued by the Council of the Institute of Chartered Accountants of India, provides that -- ''When a question arises regarding the appropriateness of the Going Concern assumption, the auditor should gather sufficient appropriate audit evidence to attempt to resolve, to the auditor's satisfaction, the question regarding the entity's ability t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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