Karnataka Authority for Advance Ruling (AAR) consisted of members Dr. M. P. Ravi Prasad and Kiran Reddy T. ruled that the tansation of sale of one of the independent business divisions along with its assets and liabilities on a going concern basis in terms of business agreement comes under the purview of transaction of supply under section 7 of CGST/KGST Act, 201.
The Applicant, Pico2Femto Semiconductor Pvt Ltd.,a business holds a certificate of registration issued under these acts bearing the GSTIN and is in the business of “providing/supplying engineering services primarily relating to semiconductor services.
The applicant submitted that the instrument of business transfer agreement dated 27.6.2022, entered by them with M/s Tessolve Semiconductor Pvt. Ltd., Bengaluru, for transfer of one of the independent running business divisions of the Applicant, namely, “business of providing/supplying of engineering services primarily relating to semiconductor services”.
The bench observed that the applicant has two independent business verticals i.e. Research & Development of Semiconductor chips and Staffing business. The applicant entered into a business transfer agreement, for transfer of staffing business along with assets and liabilities.
The applicant submitted that the agreement envisages transfer/sale of the said business division as an ongoing running business as whole, along with all the assets and liabilities thereof to M/s Tessolve Semiconductor Pvt. Ltd., and therefore, it is “slump sale”, not involving any element of supply of goods or services or both for the purposes of CGST, KGST and IGST Acts and hence the transaction is not liable to GST in terms of Sl.No.2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, being the service by way of transfer of business of a going concern as an independent part thereof.
As per the observation of the bench on section 7 of CGST Act, ‘Scope of Supply’, the 3 parts to be satisfied are (i) the activity must be a form of supply of goods or services or both, made or agreed to be made; (ii) for a consideration by a person (iii) in the course or furtherance of business.
The activity of the applicant in the instant case is transfer of staffing business, which is one of the forms of supply of goods or services or both, agreed to be made by the applicant and thus the first limb is fulfilled.
Further the impugned transaction (supply) is admittedly for a consideration, to be received in multiple stages with a performance guarantee and sharing of revenue and thus the second limb also is fulfilled.
The applicant intended to sell the staffing business in the course of his business and thus the third limb also is fulfilled.
Thus the panel observed that the applicant satisfied all the 3 parts and thus the transaction constitutes ‘Supply’. Also, it was also ruled that 18% of GST has to be paid in terms of Entry No.15(vii) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended.
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