Myth of transfer of business as a going concern being invariably exempt

The term “going concern” has no place in the GST Act. However one can refer to the pronouncement of the Advance Authority Ruling in case of Rajashri Foods Pvt Ltd for the same as mentioned below:

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 transfer of a running business which is capable of being carried on by the purchaser as an independent business. Such transfer of business as a whole will comprise comprehensive transfer of immovable property, goods and transfer of unexecuted orders, employees, goodwill etc.

The transfer of business assets implies where the part of assets are transferred and not the whole business, i.e. the liabilities remain in the books of the transferor, whereas in transfer of business all assets and liabilities are transferred together. The concept of transfer of going concern comes handy when the business as a whole is transferred, however case laws and analysis do suggest the likelihood of transfer of assets as a going concern.The Author is quite right when he says that there could be transfer of a going concern involving only assets, which like piercing the corporate veil, may have to be looked into, to ascertain first hand whether it is a transfer of a business as a going concern or a mere transfer of a going concern, confined to assets alone. while the former will be a supply of service duly attracting the exemptin under the Notification No.12/2017, the latter may attract tax as a supply of goods as rightly pointed out by the Author. My point is why wake a sleeping dog, let it lie sleeping.There are enough to worry about already and why rake up an issue when the Government itself is favorably disposed to the view of exemption of transfer of a going concern regardless of the transfer some of the assets alone. In any case the Purchase consideration will decide the measure of tax here. In fact if it is not exempted , it is good from ITC point of view, as it will not entail reversal of credit. Otherwise, reversal of credit will arise in case of holding the transfer as exempted in terms of Sec 17(2). Think about all this. I have expressed my doubt regarding the same in my article on the same earlier here.

srinivasan krishnamachari 18/08/2020