KA AAR: GST Exemption Eligible on Business Part Transfer Relating Software

GST AAR in Karnataka has ruled that tax exemption is applicable on transfers of independent business parts which is related to mobile software.

According to the two-member bench of M.P. Shri Ravi Prasad and Shri Kiran Reddy T., The transfer of an independent part of the “Loan Front” app, a mobile software application, qualifies as a transfer of going concerned, and is thus exempt from GST because it is a “service by way of transfer of a going concern as an independent part”.

A Bengaluru-based start-up, registered under the CGST/KGST Act 2017, provides digital marketing and data analytics services. “Loan Front” is a fintech product owned and developed by the applicant and is used as a digital platform for facilitating the lending of short-term personal loans. Vaibhav Vyapaar Private Limited (VVPL) intends to acquire mobile application software from the applicant.

The applicant sought an advanced ruling in respect of the determination of the tax liability associated with the transfer of a portion of their business, namely the license for the “Loan Front” app, an application for mobile devices. Accordingly, the CGST Act’s Section 97(2)(e) deems the application valid.

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According to the AAR, the business transfer relates to the loan front app, which has a fully functional nature and is being sold. The transaction contemplates the transfer of the entire business (VVPL) to a new entity (VVPL), which will control the assets and liabilities. As a result, business continuity is assumed since there is a decision to transfer the functional parts of the business to a new owner. The business is thereby sold as a going concern, it’s an independent part.