30.12.2022: Transfer of an fully functional independent part of business qualifies to be ‘transfer of going concern’, exempted from GST: Karnataka AAR

The Karnataka Authority for Advance Ruling (AAR) in the case of M/s Capfront Technologies Pvt. Ltd. vide Advance Ruling No. KAR ARDG 47/2022 dated 12.12.2022, has held that the GST exemption is available on the transfer of an independent part of business pertaining to mobile software.

In this case, the applicant is a start-up based in Bengaluru, incorporated with a focus on providing data analytics and digital marketing services, and registered under the CGST/KGST Act 2017. The applicant owns a mobile application, developed and owned by them, called “Loan Front,” which is a fintech product and is used as a digital platform to facilitate the lending of short-term personal loans. The applicant intends to transfer the said mobile application software to their wholly-owned subsidiary, Vaibhav Vyapaar Private Limited (VVPL). 

The applicant submitted that they intend to sell an independent part of their business to VVPL along with the assets and liabilities and contends that transfer of business as a whole or independent part thereof amounts to supply of service; the independent part of their business qualifies to be a “going concern” as the same would be continued in the hands of VVPL and hence their activity qualifies to be a service by way of transfer of a going concern, as a whole or independent part thereof and thus exempted in terms of Serial No. 2 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. 

The applicant sought an advance ruling in respect of the determination of the liability to pay tax on the transfer of part of their business, i.e., the “Loan Front” app, a mobile software. As a result, the application is valid under Section 97(2)(e) of the CGST Act 2017.

The AAR noted that the transfer of business pertains to the “Loan Front” app sought to be sold, which is a fully functional part of the business, and the transaction contemplates the transfer of the entire aforesaid business to a new person (VVPL), who would not only enjoy a right over the assets but also take over the liabilities. It thus assumes that there will be business continuity because the part of the business that is said to be functional is decided to be transferred to a new owner as a whole. Thus, it amounts to the transfer of a going concern, the independent part of the business and exempted from GST. 

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