Karnataka Authority for Advance Rulings: In an application sought by the applicant for advance ruling essentially on the question that whether the transaction of sale of independent running business division, namely, “business of providing/supplying of engineering services primarily relating to semi-conductor services”, constitutes a transaction of “supply” under Section 7 of Central Goods and Services Tax Act, 2017 (‘CGST Act’) / Kerala General Sales Tax Act, 2017 (‘KGST Act’), the two-member bench of Dr. M.P. Ravi Prasad and Kiran Reddy T. ruled that transfer/sale of the division concerned of the business does constitutes a transaction of “supply” under Section 7 of CGST/KGST Acts.
Brief Facts of the Case: Theapplicant has entered in business transfer/sale agreement with Tessolve Semiconductor Pvt. Ltd. for transfer of the independent running business divisions of the applicant, namely, business of providing/ supplying of engineering services primarily relating to semi-conductor services, along with all the assets and liabilities concerned with the same. In view of the transfer agreement concerned, the applicant has sought advance ruling in respect of certain questions taken up as issues by the Authority.
1. Whether the transaction of transfer of “business of providing/ supplying of engineering services primarily relating to semi-conductor services”, along with all the assets and liabilities of the independent business, constitutes a transaction of “supply” under Section 7 of CGST / KGST Acts?
(i) the activity must be a form of supply of goods or service or both, made or agreed to be made;
(ii) for a consideration by a person;
(iii) in the course or furtherance of business
It was examined by the Authority that impugned activity satisfied the three limbs, – the activity of the applicant is transfer of staffing business, which is one of the forms of supply of goods or services or both. Further, supply is admittedly for consideration, to be received in multiple stages with a performance guarantee and sharing of revenue. The applicant intended to sell the staffing business in the course of his business. Thus, it was held that the activity of transfer of business by the Applicant amounts to “supply” under Section 7(1)(a) of CGST Act.
2. If the answer to the above issue is in affirmative, Whether the transaction constitutes supply of taxable goods or taxable services or both and what would be the time of supply, value of supply and rate of tax applicable to such supply?
The answer to the first issue was affirmative, thus, the Authority examined the second issue, i.e., whether the impugned supply is of goods or services or both and what would be the time of supply, value of supply and rate of tax applicable to such supply. The Authority referred to Sections 2(52) and 2(102) of the CGST Act, which was inferred as- “that every kind of movable property other than money and securities are goods. In the instant case the staffing business of the applicant was transferred, which is not movable property and thus, the said supply was not supply of goods, it is the supply of services”.
The While examining the second issue the Authority referred to Sections 2(52) and 2(102) of the CGST Act, which states that every kind of movable property other than money and securities are goods. As, in the instant case the staffing business of the applicant was transferred, which is not a movable property ,thus, the said supply was not supply of goods, it is the supply of services
The Authority did not determine the time of supply as the details required to determine the time of supply were not forthcoming, the applicant has to determine the time of supply in terms of Section 13 of CGST Act, which deals with ‘Time of Supply of Services’. The value of the impugned supply has to be decided by the applicant based on Section 15 of CGST Act.
Further, the “supply” concerned was classified by the Authority to assess the rate of tax applicable to the impugned supply. The Authority referred to the explanatory notes to the scheme of classification of services, which has been adopted for the purpose of GST. It was observed from the classification of services that Services Accounting Code 997119 covers ‘other financial services (except investment banking, insurance services and pension services). Thus, the transaction concerned being a financial service is covered under SAC 997119 and the rate of GST applicable on the impugned transaction is 18 percent.
3. If the answer to the first and second issue are affirmative, whether the purchaser/transferee of the business is entitled to claim the credit of the “input tax” paid on the said transaction?
The Authorityobserved that the issue was about the entitlement of the ‘input tax’ credit by the recipient of the service and referred to Section 95(a) of CGST Act, which stipulates that the questions on which the advance ruling was sought, must be in relation to the supply of goods or services. As, in the said matter, the third issue was not related to the supply of the applicant but about the entitlement of the input tax credit by the recipient. Thus, the question was beyond the jurisdiction of the Authority.
4. Whether the GST rate mentioned in SI No. 2 of the notification No. 12/2017- Central Tax (Rate), dated 28-06-2017, applicable to the applicant?
The Authority noted that the said entry prescribes that the services by way of transfer of a going concern, as a whole or an independent part thereof attracts NIL rate of GST unconditionally. In the instant case, the applicant entered into an agreement on 27-06-2022 for transfer of independent division of their running business i.e., ‘staffing division’, along with assets and liabilities. However, 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 SI. No. 2 of the notification No. 12/2017, is applicable to the said transaction, subject to fulfilment of the conditions of a going concern.
[Pico2femto Semiconductor Services Pvt. Ltd., In re, 2023 SCC OnLine Kar AAR-GST 7, decided on 20-03-2023]