The Karnataka Advance Ruling Authority ( AAR ) has recently held that the sale of a going concern by a business house would not attract tax under the Goods and Services ( GST ) regime.
The applicant, M/s Rajashri Foods Pvt Ltd wanted to sell one of its units along with fixed and current assets as well as liabilities, including bank loans, for a lump sum consideration. The question raised before the authority was whether the transaction is subject to GST or not.
The AAR said that as per a government notification, any transfer of a going concern constitutes a ‘supply of service’ and ‘nil’ tax rate will apply to it.
A going concern is a concept of accounting and applies to the business of the company as a whole. Transfer of a going concern means the transfer of a running business which is capable of being carried on by the purchaser as an independent business.
“Transfer or a going concern means the transfer of a running business which is capable of being carried on by the purchaser as an independent business. Such transfer of the business as a whole will comprise comprehensive transfer or immovable property, goods and transfer of unexecuted orders, employees, goodwill etc.”
“In the instant case, the Applicant has not furnished any documentary evidence to establish that the Applicant is a going concern except their admission that it is an ongoing business and the transaction proposes to transfer all the assets and liabilities to the new owner. It implies that the business will continue in the new hands with regularity and a nature of permanency,” the Authority said.
