The Andhra Pradesh Authority of Advance Ruling (AAR) has recently ruled that the transfer of a unit along with capital assets to a another Unit of the same Company as a going concern is a supply of service. However same will be an exempt supply as per Sl.No.2 of the Notification No.12/2017 – Central Tax (Rate) dated June 28, 2017.
Facts of the Case:
The applicant, M/s Shilpa Medicare Limited undertakes Research and Development work in Active Pharmaceutical Ingredient (API) & formulation molecules and manufacture of formulation products in small quantities for R&D purpose.
M/s Shipra Medicare Limited , Vizianagram Unit, Andhra Pradesh which is GST registered undertakes R&D work and the whole business will be shifted to M/s Shipra Medicare Limited , Bengaluru Unit, Karnataka which is ongoing concern for a monetary consideration.
Questions on which ruling is sought:
- Whether the transaction would amount of supply of goods or supply of services or supply of goods & services.
- Whether the transaction would be covered under Sl.No.2 of the Notification No.12/2017 – Central Tax (Rate) dated June 28, 2017.
- Can an applicant file GST ITC-02 return and transfer unutilized ITC from Vizianagaram, Andhra Pradesh unit to Bengaluru, Karnataka Unit.
AAR Order: Highlights and Ruling
- A plain reading of part 4(c) of Schedule II of the CGST Act,2017 clarifies that transfer of business assets is ‘supply of goods’. But in instant case the business in entirety is transferred or sold along with capital assets as going concern. Thus, it disqualifies the ‘going concern’ criteria and thus as per above the instant transaction cannot be grouped under ‘supply of goods’.
- The definition of services qualifies ‘anything other than goods’ as service. In this context it is obvious that the ‘going concern’ which was excluded from the list of supply of goods, would automatically fall under ‘supply of services’.
- The description of services under Sl. No 2 of Chapter 99 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 provides for ” Services by way of transfer of a going concern , as a whole of an independent part thereof” as nil rated (exempt). Hence, the transaction is not liable to tax.
- It is evident from Section 18(3) of the CGST Act, 2017 read with Rule 41 of the CGST Rules,2017 that in case of sale or transfe , the transferor can transfer unutilised input tax credit to the transferee , which is lying in his electronic credit ledger , by filng Form GST ITC-02.
In view of the observations stated above, the Andhra Pradesh AAR passed the following ruling:
- The transaction of transferring business as going concern along with the capital assets amounts to the supply of service.
- The transaction will be covered under Sl.No.2 of the Notification No.12/2017 – Central Tax (Rate) dated June 28, 2017.
- The applicant can file GST ITC-02 return and transfer unutilized ITC from Vizianagaram, Andhra Pradesh unit to Bengaluru, Karnataka Unit.
READ ORDER:
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