Any transfer of a going concern constitutes a 'supply of service' and 'nil' tax rate will apply on it.
New Delhi: Sale of a going concern by a business house will not attract Goods and Services Tax (GST), as per an order by the Authority for Advance Ruling (AAR).
The Karnataka bench of the AAR gave its ruling based on an application filed by Rajashri Foods Pvt Ltd which wanted to sell one of its units along with fixed and current assets as well as liabilities, including bank loans, for a lump sum consideration.
The AAR said that as per a government notification, any transfer of a going concern constitutes a 'supply of service' and 'nil' tax rate will apply on it. A going concern is a concept of accounting and applies to the business of the company as a whole.
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.
EY India Partner Abhishek Jain said: "The ruling should aid in offering clarity to GST implications on conventional hiving off/demerger transactions".
AMRG & Associates Partner Rajat Mohan said, "This ruling categorising the transaction of transfer of running business as a supply of service would be a nightmare for corporate's undertaking mergers and acquisitions, as it would entice higher compliance on account of GST and would also force amalgamating company for proportionate reversal of common input tax credits."