The Karnataka Authority for Advance Ruling (AAR) in the case of M/s PICO2FEMTO Semiconductor Services Private Limited vide Advance Ruling No. KAR ADRG 12/2023 dated 20.03.2023, has held that the transaction of transfer or sale of one of the independently running business divisions, as a whole along with all the assets and liabilities of the independent business division on a going concern basis, constitutes a transaction of “supply” under Section 7 of the CGST Acts and would attracts 18% GST.
In this case, the applicant has two independent verticals i.e. Research and Development of semi-conductor chips and staffing business. The applicant entered into business transfer agreement with M/s Tessolve Semiconductor Private Limited, for transfer of staffing business along with all the assets and liabilities. The applicant submitted that, in terms of the “Business Transfer Agreement or Business Sale Agreement,” it has sold the independent running business of “providing/supplying engineering services primarily relating to semi-conductor services”, along with all the assets and liabilities as a whole as a going concern and therefore, it is “slump sale” not involving any element of supply of goods or services or both for the purposes of GST, and hence the transaction is not liable to GST in terms of Serial No. 2 of Notification No. 12/2017-CT(Rate) dated 28.06.2017, being the service by way of transfer of business of a going concern as an independent part thereof.
The issue raised was whether the transaction of transfer or sale of one of the independent running business divisions of the applicant, as a whole, along with all the assets and liabilities of the independent business division, constitutes a transaction of “supply” under Section 7 of the CGST and SGST Acts.
The AAR observed that for any activity to be qualified as supply under the GST Act, it should satisfy three parts i.e. (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. Since, in the instant case, all the above three parts is fulfilled i.e. the activity of transfer of staffing business, which is one of the form of supply of goods or services or both , agreed to be made for a consideration in the course of business. Therefore, the activity of applicant amounts to or results in supply in terms of Section 7 of the CGST Act, 2017.
Further, for the concern about the applicability of the benefit of Serial No. 2 of the Notification No. 12/2017-CT (Rate), the AAR observed that the applicant has not furnished any certificate from the qualified auditor to the extent that the staffing division business is a going concern. Hence, the benefit of Serial No. 2 of the aforesaid Notification which prescribes that the ‘services by way of transfer of a going concern, as a whole or an independent part thereof' is applicable subject to the fulfilment of the conditions of a going concern.
The AAR held that in the instant case, the supplier, i.e., the applicant, and the recipient of the supply are not related, and the price is the sole consideration for the supply, and thus the value of the impugned supply shall be the transaction value, which is the price actually paid or payable. The applicant, accordingly, has to arrive at the value of the supply. Thus, because the transaction is a financial service, it gets covered under SAC 997119. The rate of GST applicable to the impugned transaction is 18%.
