Supply of goods and services or both under GST Law is Taxable. If there is no supply than no GST levied on it. When a firm consolidates with another firm/company, then there is a transfer of assets and liabilities from an applicant firm to a company-the ultimate firm. Are these transfers treated as supply and liable to GST?
Let us check:
BM Industries a Yamunanagar, Haryana based proprietorship firm involved in manufacturing and sale of aluminium profiles proposed to merge as a going concern with Bimal Aluminium Pvt another firm of the same city. As a result of which the applicant firm -BM Industries will not exist anymore and all its liabilities, assets, rights and claims will be taken up by Bimal Aluminium Pvt.
The applicant put forth two specific queries to Haryana AAR:
- Is the applicant liable to pay tax under the CGST/SGST Act, on its fixed and current assets after its consolidation as a going concern with a Pvt. Ltd. firm
- Is ITC available in its credit ledger account or cash ledger account transferable to the respective credit ledger and cash ledger account of the private limited company, after merging?
Read Also: AAR: Penal Interest on Loans or EMI Delays/Defaults will Attract GST
The appeal was made that:
- The transmission of the applicant’s business as a going concern to a private limited company is not an ordinary course of business or for the promotion of business.
- All the assets and liabilities of the applicant to be taken over by the company and business of the firm will be continued by the company.
- The term ‘supply’ includes sale, transfer, barter, the exchange made for a consideration in the course of or for the furtherance of business.
- The selling of business is an extraordinary activity and not the business of the applicant and hence the activity cannot be referred to as supply as per Section 7 of the CGST Act, 2017.
The AAR found to weigh in the appeals made and held that certain provisions are made under the GST laws which are related to the taxability of the transaction where the business is transferred as a going concern.
The provision concludes that:
- Such a transaction is not termed as supply. It defines that the applicant will not be liable to pay GST on the fixed assets and currents assets, including stocks of raw material, semi-finished and finished goods
- ITC present in the credit ledger account of proprietorship firm will be reassigned to the respective credit ledger account of the private limited company as per the relevant provisions of GST laws.
Recommended: Govt Looks Liberal on GST Compliance for Businesses Till Polling
A tax expert demonstrated his agreement with the provision by saying “This ruling signifies that where facts about entire business getting transferred are clear, there is not much to be deliberated upon taxability or credit transfer, as the law on both these aspects is crystal clear,”.
