GST on Slump Sale
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What is Slump Sale?
Slump sale refers to transferring a part or whole of a business to another firm for a lump sum amount without assigning individual values to assets and liability.
Exemption under GST
As per Clause 2 of Notification no. 12/2017-Central Tax (Rate) dated 28th June, 2017, Services by way of transfer of a going concern, as a whole or an independent part thereof, is exempted from levy of GST.
Schedule II of the CGST Act excludes the transfer of a business as a going concern as the supply of goods but includes the transfer of business assets as the supply of goods.
Advance Ruling under GST on Slump Sale
M/s. Rajashri Foods Pvt. Ltd (Advance Ruling No. KAR ADRG 06/2018) - Karnataka AAR
The activity of transfer of a going concern constitutes a supply of service.
A going concern is a concept of accounting and applies to the business of the company.
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.
Also, the transaction of transfer of one of the units of the Applicant as a going concern is covered under SI. No. 2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 subject to the condition that the unit is a going concern.”
Innovative Textile Ltd. (Advance Ruling No. KAR ADRG 20/2018) - Uttarakhand AAR
“We observe 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. We further find that internationally accepted guideline (applicable to the case in hand) issued by His Majesty’s Revenue and Customs (HRMC) to treat a transfer of business as a going concern are as under:
The assets must be sold as part of a ‘business’ as a ‘going concern’
The purchaser intends to use the assets to carry on the same kind of business as the seller
Where only part of a business is sold, it must be capable of separate operation
There must not be a series of immediately consecutive transfers”.
Airport Authority of India [TS-461-AAR(GUJ)-2021-GST] - Gujarat AAR
Here, Airport Authority of India and Adani Enterprises Ltd. entered into an agreement for transfer of Operations, development and maintenance of Ahmedabad Airport from AAI to SPV. AAR categorically holds that “for transfer to be effected, sale is not the only criteria. Transfer simpliciter…is valid enough to term subject going concern as transferred from AAI to SPV.”
In this light, AAR relying on Bombay HC ruling in case of Sunderdas Harjiwan opined that “it is not essential to transfer all assets and liabilities for a transaction to qualify for a transfer of business.”; The Hon'ble HC further added that “its prudent to clarify our thought process in pronouncing the subject business arrangement as transfer of going on concern, though there is no sale, as transfer of going on concern is not limited to sale (slump sale/Item wise sale) but such transfer may be witnessed in circumstances such as sale/gift/lease/leave or license/hire/in any other manner”.