DAMODARAM SANJIVAYYA NATIONAL LAW

UNIVERSITY VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE
DRUG TRAFFICKING ISSUE BETWEEN INDIA AND BANGLADESH

SUBJECT
INTERNATIONAL DISPUTE SETTLEMENT

NAME OF THE FACULTY

VISHNU KUMAR SIR

NAME OF STUDENT
L. SAI RADHA KRISHNA

ROLL NO
2016055

SEMESTER
VII
 ACKNOWLEDGEMENT

I must express my most sincere appreciation to my faculty advisor VISHNU KUMAR sir,
whose direction, efforts and encouragement aided the outcome of this study and for giving
me the much-needed support.
To do project on the topic DRUG TRAFFICKING ISSUE BETWEEN INDIA AND
BANGLADESH. I would also like to thank all my friends for providing me with sources and
materials. They deserve my most hearty gratitude for their support and assistance in my
work.
 SYNOPSIS

AIM OF THE STUDY:

The main objective of the study is to analyze the issues between the both countries and other
issues India is facing through other border countries
SCOPE OF THE STUDY:
Scope of the study is limited and is confined to Indian perspective
RESEARCH METHODOLOGY:
This project is purely Doctrinal and based on primary and secondary sources such as
websites, books, articles, and internet sources. This research process deals with theoretical
and analyzing information that is collected. The research is purely descriptive in its
boundaries of the topic.
REVIEW OF LITERATURE:
The researcher had taken the information from the articles, websites and books which
provided a lot of help for completion of the project. The information in the articles and
websites has been cited.
 INTRODUCTION

SCOPE OF SUPPLY
7. (1) For the purposes of this Act, the expression "supply" includes—

(a) all forms of supply of goods or services or both such as sale, transfer, barter,
exchange, licence, rental, lease or disposal made or agreed to be made for a
consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of
business; [and]
(c) the activities specified in Schedule I, made or agreed to be made without a
consideration [***]
(d) [***]
[(1A) Where certain activities or transactions constitute a supply in accordance with the
provisions of sub-section (1), they shall be treated either as supply of goods or supply of
services as referred to in Schedule II.]

(2) Notwithstanding anything contained in sub-section (1),—

(a) activities or transactions specified in Schedule III; or

(b) such activities or transactions undertaken by the Central Government, a State
Government or any local authority in which they are engaged as public authorities,
as may be notified by the Government on the recommendations of the Council,
shall be treated neither as a supply of goods nor a supply of services.

(3) Subject to the provisions of [sub-sections (1), (1A) and (2)], the Government may, on the
recommendations of the Council, specify, by notification, the transactions that are to be
treated as—

(a) a supply of goods and not as a supply of services; or

(b) a supply of services and not as a supply of goods.

BM INDUSTRIES CASE IN RE
FACTS

The applicant a Haryana based proprietorship firm involved in manufacturing and sale of
aluminium profiles proposed to merge as a going concern with Bimal Aluminium Pvt Ltd.,
another firm of the same city. Consequent to the merger, the applicant firm will not exist
anymore and all its liabilities, assets, rights and claims will be taken up by Bimal Aluminium
Pvt. Ltd.

The applicant sought Advance Ruling on the following:

(i) Whether applicant is liable to pay tax under the CGST/SGST Act, on its fixed and
current assets including stocks of raw material, semi-finished and finished goods
after merger of his proprietorship firm as a going concern with a Pvt. Ltd. Company?
(ii) Whether ITC available in the credit ledger account or cash ledger account of
proprietorship firm shall be transferred to respective credit ledger and cash ledger
account of the private limited company, consequent upon merger?

HELD

This is a case of merger of two entities, and the questions raised relate to transfer of ITC
lying as balance in electronic credit ledger of the going concern. In this regard, it is observed
that section 18(3), provides that where there is a change in the constitution of a registered
person on account of sale, merger, demerger, amalgamation, lease or transfer of the business
with the specific provisions for transfer of liabilities, the said registered person shall be
allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger
to such sold, merged, demerged, amalgamated, leased or transferred business in such manner
as maybe prescribed. Further, rule 41 of the CGST/HGST Rules, 2017, provides transfer of
credit on sale, merger, amalgamation, lease or transfer of a business. Thus, it is evidently
clear that there are provisions in the law, where in case of merger, a registered person, by
filing Form GST ITC-02, electronically on common portal, can transfer unutilized input tax
credit lying in his electronic credit ledger to the transferee. Here it is to be noted that these
provisions pertain to transfer of unutilized input tax credit. These provisions are not
applicable to unutilized balance lying in electronic cash ledger.
It is further observed that section 7, defines the scope of supply, which includes sale, transfer,
barter, exchange made for a consideration in the course of or for furtherance of business and
also provides vide clause (d) to sub-section (1) that the activities to be treated as supply of
goods or services as referred to in Schedule II. As per Schedule II of the CGST/HGST Act
2017, para 4 pertain to transfer of business assets and clause (c) of para 4, provides that
where any person ceases to be a taxable person, any goods forming part of the assets of any
business carried on by him shall be deemed to be supplied by him in the course or
furtherance of his business immediately before he ceases to be taxable person, unless,

(i) The business is transferred as a going concern to another person; or

(ii) The business is carried on by a personal representative who is deemed to be a
taxable person

Thus, there is force in the contentions raised by the applicant that as per Para 4(c) of
Schedule II to the CGST/HGST Act, 2017, transfer of business as a going concern is not
treated as supply and thus, the same stands excluded from the scope of supply of good

Reference made by the applicant to Notification No. 12/2017-Central Tax (rate), dated 28-6-
2017, which exempts the intrastate supply of services of transfer of a going concern as a
whole or an independent part thereof from the central tax payable under section 9(1) of the
CGST Act, is also found to be in favour of the contentions raised by the applicant. (Similar
Notification No. 47/ST-2, dated 30-6-2017 has been issued under the HGST Act 2017)

Thus, it emerges that the applicant can transfer unutilized input tax credit, under the
provisions of section 18(3) of the CGST/HGST Act, 2017 and rule 41 of the CGST/HGST
Rules, 2017, in case of merger.

The applicant, on merger of his proprietorship firm as a going concern with a private limited
company, is not liable to pay tax under CGST/SGST Act on the fixed assets and currents
assets including stocks of raw material, semi-finished and finished goods.

The input tax credit available in the credit ledger account proprietorship firm shall be
transferred to the respective credit ledger account of the private limited company, consequent
 upon merger, subject to the provisions of Section 18(3) of the CGST/HGST Act, 2017 and
Rule 41 of the CGST/HGST Rules, 2017.

The provisions of section 18(3) of the CGST/HGST Act, 2017 and Rule 41 of the CGST/HGST
Rules, 2017, are not applicable to the balance in lying in electronic cash ledger

Reasoning

As per facts stated by Sh. Rajesh Kumar, Prop. M/s B. M. Industries, 33, Industrial Estate,
Phase-II, Yamunanagar (Haryana) [hereinafter referred to as the "applicant"], the firm is a
going concern engaged in manufacture and sale of aluminium profiles, owning fixed assets,
current assets and also has long-term as well as current liabilities. The applicant proposes to
merge as GOING CONCERN with M/s Bimal Aluminium Pvt. Ltd., Yamunanagar, having
GSTN 06AAACB6210G1Z9. That consequent to merger the proprietorship firm M/s B.
M Industries, owned by the applicant, shall cease to exist and its all present and future assets,
liabilities, rights, claims, businesses, etc., shall be taken over by M/s Bimal Aluminium Pvt.
Ltd. All future liabilities of GST, as and when arise, shall be met by M/s Bimal Aluminium
Pvt. Ltd., in normal course of business. After merger, M/s B.M. Industries shall apply for
cancellation of registration in form GST-REG-16, within 30 days as prescribed.

The applicant submits that as per Rule 41 of CGST/HGST Rules and Section 29 of the
CGST/HGST Act, tax is not payable in case of merger of proprietorship firm with company,
in the manner, as mentioned above and consequent upon merger unutilized input tax credit of
the Applicant firm will be available to M/s Bimal Aluminum Pvt. Ltd., Yamunanagar.

Questions on which ruling has been sought by the applicant, are as under:

(a) Whether the applicant is liable to pay tax under CGST/SGST Act, on merger of his
proprietorship firm as a going concern with a private limited company on the fixed
assets and currents assets including stocks of raw material, semi-finished and
finished goods.
(b) Whether the input tax credit available in the credit ledger account or cash ledger
account of proprietorship firm shall be transferred to the respective credit ledger and
cash ledger account of the private limited company, consequent upon merger.
Comment of the Officer under section 98 (1) of the CGST, HGST Act 2017

The DETC (ST), Jagadhari had submitted his comments on 18.06.2018, wherein the legal
provisions as contain in section 41 and section 85 of the CGST/HGST Act, 2017 have been
reproduced without any observation viz-a-viz the facts of the case.

RECORDS OF PERSONAL HEARING - 2ND PROVISO TO SECTION 98(2) OF

CGST/HGST ACT. 2017

Opportunity for personal hearing was granted to the applicant on 20.06.2018, which was
attended by Sh. Pankaj Malik, Chartered Accountant, on behalf of the applicant. He made
following submissions:

(a) That the merger of M/s B.M. Industries with M/s Bimal Aluminium Pvt. Ltd. would
be for consideration based on the valuation of assets & liabilities on the date of
merger. Consequent upon merger of M/s B.M. Industries all assets and liabilities
shall be taken over by M/s Bimal Aluminium Pvt Ltd and business of
M/s B.M. Industries would continue to run under the ownership of M/s Bimal
Aluminium Pvt. Ltd with regularity and permanency. The merger or takeover is for
the complete business of M/s B.M. Industries as a whole involving transferring of all
assets & liabilities to M/s Bimal Aluminium Pvt. Ltd and not for part of the assets.
(b) Section 7 of the CGST Act, 2017 defines the scope of supply. As per sub-section 1,
the supply includes sale, transfer, barter, exchange made for a consideration in the
course of or for furtherance of business. The transfer of the applicant's business as a
going concern to a private limited company is not in the ordinary course of business
or for the furtherance of business. The selling of business is not the business of the
applicant. It, in fact, cannot be called a transaction in the normal course of business
or for furtherance of business. It is an extraordinary activity which shall bring the
business to an end in the hands of the applicant although it will continue to operate
with regularity and permanently in the hands of the buyer i.e. M/s Bimal Aluminium
Pvt Ltd. As the action of the applicant is not in the regular course of business nor it
has the impact of furtherance of business, therefore, the activity cannot be termed as
supply as per Section 7 & hence exempt from the payment of tax.
Reference was made to the provisions of Schedule II of the CGST Act, 2017 specifies the
activities to be treated as "Supply of Goods or Supply of Services'' and it was submitted that
as per Para 4(c) of subject schedule, transfer of business as a going concern is not treated as
supply. The applicant also referred to Notification No. 12/2017-Central Tax (rate), dated 28-
06-2017. The notification exempts the intrastate supply of services of description as specified
in column 3 of the table from Central Tax leviable thereon under Sub-section (1) of Section 9
of CGST Act, 2017 as is in excess of the tax calculated at the rate as specified in the
corresponding entry in column (4) of the table. As per Sr. No.2 of the said Notification,
services by way of transfer of going concern, as a whole or an independent part thereof, have
been exempted. Similar notification No 47/ST-2, dated 30-06-2017 has been issued by the
Haryana Government under HGST Act, 2017.

The applicant also placed reliance on the advance ruling given by the Authority for Advance
Rulings, Karnataka having Advance Ruling No. KAR ADRG 06 of 2018, dated 23/04/2018,
in the case of Rajashri Foods (P) Ltd., In The applicant has submitted that the facts and
circumstances of the applicant's case are identical to the facts & circumstances of the Rajashri
Foods (P.) Ltd. case, (supra) hence the ruling is fully applicable to the applicant's case. The
ld. Advance Ruling Authority, Karnataka has given the ruling that:—

"1. The transaction of transfer of business as a whole of one of the units of the Applicant
in the nature of a going concern amounts to supply of service.

2. The transactions of transfer of one of the units of the Applicant as a going concern is
covered under Sr. No 2 of the Notification Nol2/2017-Central Tax (Rate), dated 28-06-
2017 subject to the condition that the unit is a going concern."

The applicant quoted the provisions of Section 18 of the CGST Act 2017 and Rule 41 of
CGST Rules and submitted that Section 18(3), read with Rule 41 allows the transfer of the
input tax credit shown in the account of the Applicant as balance of the Electronic Cash
Ledger and The Electronic Credit Ledger to the respective ledgers of M/s Bimal Aluminium
Pvt. Limited subject to observance of conditions prescribed in Rule 41 of CGST Rules.

After hearing the applicant in detail and discussions, the applicant was admitted as being
covered by section 97 (2) (d) & (e) of the CGST/HGST Act, 2017. As regard merits, the
decision was reserved which is being released today.

DISCUSSIONS AND FINDINGS OF THE AUTHORITY

8. We have carefully gone through the facts and records of the case. On facts presented by the
applicant, this is a case of merger of two entities, and the questions raised relate to transfer of
ITC lying as balance in electronic credit ledger of the going concern. In this regard, it is
observed that Section 18 (3) of the CGST/HGST Act, 2017, provides as under:

"(3) Where there is a change in the constitution of o registered person on account of sale,
merger, demerger, amalgamation, lease or transfer of the business with the specific
provisions for transfer of liabilities, the said registered person shall be allowed to
transfer the input tax credit which remains unutilised in his electronic credit ledger to
such sold, merged, demerged, amalgamated, leased or transferred business in such
manner as may be prescribed."

Further, Rule 41 of the CGST/HGST Rules, 2017, provides as under:

"RULE 41. Transfer of credit on sale, merger, amalgamation, lease or transfer of a

business:

(1) A registered person shall, in the event of sale, merger, demerger, amalgamation,
lease or transfer or change in the ownership of business for any reason, furnish the
details of sale, merger, demerger, amalgamation, lease or transfer of business, in
FORM GST ITC-02, electronically on the common portal along with a request for
transfer of unutilized input tax credit lying in his electronic credit ledger to the
transferee:
Provided that in the case of demerger, the input tax credit shall be apportioned in the
ratio of the value of assets of the new units as specified in the demerger scheme.
(2) The transferor shall also submit a copy of a certificate issued by a practicing-
chartered accountant or cost accountant certifying that the sale, merger, demerger,
amalgamation, lease or transfer of business has been done with a specific provision
for the transfer of liabilities.
(3) The transferee shall, on the common portal, accept the details so furnished by the
transferor and, upon such acceptance, the unutilized credit specified in FORM GST
ITC02 shall be credited to his electronic credit ledger.
(4) The inputs and capital goods so transferred shall be duly accounted for by the
transferee in his books of account. "
Thus, it is evidently clear that there are provisions in the law, where in case of merger, a
registered person, by filing Form GST ITC-02, electronically on common portal, can transfer
unutilized input tax credit lying in his electronic credit ledger to the transferee. Here it is to
be noted that these provisions pertain to transfer of unutilized input tax credit. These
provisions are not applicable to unutilized balance lying in electronic cash ledger.

9. It is further observed that Section 7 of the CGST/HGST Act, 2017, defines the scope of
supply, which includes sale, transfer, barter, exchange made for a consideration in the course
of or for furtherance of business and also provides vide clause (d) to sub-section (1) that the
activities to be treated as supply of goods or services as referred to in Schedule II.

As per Schedule II of the CGST/HGST Act, 2017, para 4 pertain to transfer of business assets
and clause (c) of para 4, provides as under:

(a) Where any person ceases to be a taxable person, any goods forming part of the assets
of any business carried on by him shall be deemed to be supplied by him in the
course or furtherance of his business immediately before he ceases to be taxable
person, unless—
"(i) The business is transferred as a going concern to another person; or
(ii) The business is carried on by a personal representative who is deemed to be
a taxable person"
Thus, we find force in the contentions raised by the applicant that as per Para 4(c) of
Schedule II to the CGST/HGST Act, 2017, transfer of business as a going concern is not
treated as supply and thus, the same stands excluded from the scope of supply of goods.

10. Reference made by the applicant Notification No. 12/2017-Central Tax (rate), dated 28-
06-2017, which exempts the intra state supply of services of transfer of a going concern as a
whole or an independent part thereof from the central tax payable under section 9(1) of the
CGST Act, is also found to be in favour of the contentions raised by the applicant. [Similar
Notification No.47/ST-2, dated 30-06-2017 has been issued under the HGST Act, 2017].

11. Thus, it emerges that the applicant can transfer un-utilized input tax credit, under the
provisions of Section 18(3) of the CGST/HGST Act, 2017 and Rule 41 of the CGST/HGST
Rules, 2017, in case of merger. Accordingly, in the light of above, the advance ruling is
pronounced as under:-

ADVANCE RULING UNDER SECTION 98 OF THE CGST/HGST ACT, 2017

 12.1 The applicant, on merger of his proprietorship firm as a going concern with a private
limited company, is not liable to pay tax under CGST/SGST Act on the fixed assets and
currents assets including stocks of raw material, semi-finished and finished goods.

12.2 The input tax credit available in the credit ledger account proprietorship firm shall be
transferred to the respective credit ledger account of the private limited company, consequent
upon merger, subject to the provisions of Section 18(3) of the CGST/HGST Act, 2017 and
Rule 41 of the CGST/HGST Rules, 2017.

12.3 The provisions of Section 18(3) of the CGST/HGST Act, 2017 and Rule 41 of the
CGST/HGST Act, 2017, are not applicable to the balance in lying in electronic cash ledger.

REFERED CASES IN THE ABOVE JUDGEMENT ARE

RAJASHRI FOODS (P.) LTD., IN RE

FACTS

The applicant, having three manufacturing units situated at Ramanagara, Hiriyur and
Bengaluru intended to sell the unit situated at Hiriyur along with all its fixed assets namely
land, building, plant & machinery etc., current assets namely stock & trade receivables etc.,
and liabilities namely Bank term loans, bank working capital loans, creditors for supplies
etc., for a lump sum consideration.

The applicant sought Advance Ruling on the following questions/issues:

1. 'Whether the transaction would amount to supply of goods or supply of services or
 supply of goods & services?'
2. 'Whether the transaction would be covered under S. No. 2 of the Notification No.
12/2017- Central Tax (Rate), dated 28-6-2017'?

HELD

The applicant has stated in their application that they intend to sell one of their animal feed
manufacturing units operational since 1990. Further it has been contended that this unit
besides having fixed assets in the form of land, building, plant and machinery has current
assets like receivables, inventory etc. Further the said unit is stated to have term loans availed
from the banks for setting up of the unit and also working loans for working capital
requirements. Furthermore the unit has sundry creditors as well as outstanding liabilities. It
has been summarised that the transaction envisages the transfer of all assets to the buyer and
the buyer shall also take over all the liabilities.

The aforesaid statement of facts conveys that the unit sought to be sold is a fully functional
unit and the transaction contemplates the transfer of the entire business to a new person, who
would not only enjoy a right over the assets but shall also take over the liabilities. It thus
postulates that there will be a continuity of business. As the unit is said to be functional and is
desired to be transferred as a whole to a new owner it amounts to transfer of a going concern
as a whole.

In the backdrop of the aforementioned facts of the case it now needs to be determined
whether the transaction amounts to supply of goods or supply of services or supply of both
goods and services.

Section 7 of the CGST Act, 2017 defines the Scope of Supply, section 7(1) provides that
'Supply' includes activities such as sale, transfer, barter, exchange etc. made for a
consideration in the course or furtherance of business. This implies that the activity
undertaken shall be an action which takes place in the course of regular conduct of business,
such as sale or it should have the effect of furtherance of the business. Therefore the activity
to be called as supply should be such that undertaking that activity shall amount to conduct of
business or enhancing the business. The transfer of a going concern, either as a whole or an
independent part thereof, for a lump sum consideration does not constitute an activity taking
place in the course of business or for furtherance of business. However since the word
'includes' has been used in section 7(1), the scope of supply goes beyond the meaning of the
expression 'in the course or furtherance of business'. Therefore in the case of the transfer of a
going concern even if the act of transfer does not constitute an activity carried out in the
course of regular business or for furtherance of business, the activity may still qualify to be
termed as a supply.

Section 7(1)(d) stipulates that activities referred to in Schedule II shall be treated as supply of
goods or supply of services. In Schedule II the entry at serial number 4 refers to Transfer of
business assets'. Transfer of business assets is considered as supply of goods. The transfer of
business assets implies that a part of the assets are transferred and not the whole business. It
is the applicants case that the entire business is proposed to be transferred, where all assets
and liabilities will be transferred to the new owner and business would have continuity,
regularity and permanency, Thus an entire ongoing activity will get transferred, which would
include assets of the business, the stock-in-trade, cash in hand as also the liabilities attached
to the business. Further in part 4(c) of Schedule II it is provided that when the business is
transferred as a going concern then it does not amount to supply of goods. It, therefore,
becomes clear that such transfer of business does not constitute a supply of goods.
Activities which constitute supply of services are also described in Schedule II. However the
transaction involving the transfer of a going concern is not covered under this Schedule.

This analysis further brings to the Notification No. 12/2017-Central Tax (Rate), dated 28-6-
2017. Column number 3 of the Table in the said Notification gives the description of the
services. Serial number 2 of the Notification provides for Services by way of transfer of a
going concern, as a whole or an independent part thereof. This indicates that the activity of
transfer of a going concern constitutes a supply of service. The Notification further provides
'Nil' rate of tax on such a supply. On the basis of the aforementioned analysis it is concluded
that the transfer of a going concern constitutes a supply of service.
The Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 itself speaks that the
activity of transfer of a going concern, as a whole or independent part thereof, is exempt from
payment of so much Central Tax leviable under sub-section (1) of section (9) of the CGST
Act, 2017. The essential condition in-built in the Notification is that the transaction should
 involve a going concern only. The applicant has only asserted and not proved or shown
conclusively that the transaction involves a going concern.
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. Such transfer of business as a
whole will comprise comprehensive transfer of immovable property, goods and transfer of
unexecuted orders, employees, goodwill etc. In the instant case, the applicant has not
furnished any documentary evidence to establish that the applicant is a going concern except
their admission that its an ongoing business and the transaction proposes to transfer all the
assets and liabilities to the new owner. It implies that the business will continue in the new
hands with regularity and a nature of permanency.

In view of the foregoing, it is ruled as follows:

1. The transaction of transfer of business as a whole of one of the units of the
applicant in the nature of a going concern amounts to supply of service.
2. The transaction of transfer of one of the units of the applicant as a going concern
is covered under SI.No.2 of the Notification No. 12/2017- Central Tax (Rate), dated
28-6-2017 subject to the condition that the unit is a going concern.

REASONING

5. We have considered the submissions made by the Applicant in their application for
advance ruling as well as the submissions made by Sri S. Vishnu Murthy, Chartered
Accountant, the authorised representative of the applicant, during the personal hearing. We
also considered the questions/issues on which advance rulings have been sought for by the
applicant, relevant facts having bearing on the questions/issues raised, the applicant's
understanding/interpretation of law in respect of the issue.

6. The Applicant has sought advance ruling on two questions i.e (1)" Whether the transaction
would amount to supply of goods or supply of services or supply of goods & services?" and
(2) "Whether the transaction would cover under sl.no.2 of the Notification No. 12/2017-
Central Tax (Rate) dated 28.06.2017?"

7. The first question before the Authority to decide is whether the aforesaid transaction would
amount to supply of goods or supply of services or supply of goods and services.

7.1 The Applicant has stated at Serial number 15 of their application that they intend to sell
one of their animal feed manufacturing units operational since 1990. Further it has been
contended that this unit besides having fixed assets in the form of land, building, plant and
machinery has current assets like receivables, inventory etc. Further the said unit is stated to
have term loans availed from the banks for setting up of the unit and also working loans for
working capital requirements. Furthermore the unit has sundry creditors as well as
outstanding liabilities. It has been summarised that the transaction envisages the transfer of
all assets to the buyer and the buyer shall also take over all the liabilities.

7.2 The aforesaid statement of facts conveys that the unit sought to be sold is a fully
functional unit and the transaction contemplates the transfer of the entire business to a new
person, who would not only enjoy a right over the assets but shall also take over the
liabilities. It thus postulates that there will be a continuity of business. As the unit is said to be
functional and is desired to be transferred as a whole to a new owner it amounts to transfer of
a going concern as a whole.

7.3 In the backdrop of the aforementioned facts of the case it now needs to be determined
whether the transaction amounts to supply of goods or supply of services or supply of both
goods and services.

7.3.1 Section 7 of the CGST Act, 2017 defines the Scope of Supply, Section 7(1) provides
that 'Supply' includes activities such as sale, transfer, barter, exchange etc. made for a
consideration in the course or furtherance of business. This implies that the activity
undertaken shall be an action which takes place in the course of regular conduct of business,
such as sale or it should have the effect of furtherance of the business. Therefore the activity
to be called as supply should be such that undertaking that activity shall amount to conduct of
business or enhancing the business. The transfer of a going concern, either as a whole or an
independent part thereof, for a lump sum consideration does not constitute an activity taking
place in the course of business or for furtherance of business. However since the word
'includes' has been used in Section 7(1) the scope of supply goes beyond the meaning of the
expression 'in the course or furtherance of business', Therefore in the case of the transfer of a
going concern even if the act of transfer does not constitute an activity carried out in the
course of regular business or for furtherance of business, the activity may still qualify to be
termed as a supply.

7.3.2 Section 7(1)(d) stipulates that activities referred to in Schedule II shall be treated as
supply of goods or supply of services. In Schedule II the entry at serial number 4 refers to
Transfer of business assets'. Transfer of business assets is considered as supply of goods. The
transfer of business assets implies that a part of the assets are transferred and not the whole
business. It is the applicants case that the entire business is proposed to be transferred, where
all assets and liabilities will be transferred to the new owner and business would have
continuity, regularity and permanency. Thus an entire ongoing activity will get transferred,
which would include assets of the business, the stock-in-trade, cash in hand as also the
liabilities attached to the business. Further in part 4(c) of Schedule II it is provided that when
the business is transferred as a going concern then it does not amount to supply of goods. It,
therefore, becomes clear that such transfer of business does not constitute a supply of goods.

7.3.3 Activities which constitute supply of services are also described in Schedule II.
However the transaction involving the transfer of a going concern is not covered under this
Schedule.

7.3.4 This analysis further brings us to the Notification. No. 12/2017-Central Tax (Rate)
dated 28th June 2017. Column number 3 of the Table in the said Notification gives the
description of the services. Serial number 2 of the Notification provides for 'Services by way
of transfer of a going concern, as a whole or an independent part thereof. This indicates that
the activity of transfer of a going concern constitutes a supply of service. The Notification
further provides 'Nil' rate of tax on such a supply,

On the basis of the aforementioned analysis we conclude that the transfer of a going concern
constitutes a supply of service.

8. The second question for which a Ruling has been sought is whether the transaction would
cover under sl.no.2 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017?

8.1 The notification itself speaks that the activity of transfer of a going concern, as a whole or
independent part thereof, is exempt from payment of so much Central Tax leviable under sub-
section (1) of section (9) of the CGST Act, 2017. The essential condition in-built in the
Notification is that the transaction should involve a going concern only. The applicant has
only asserted and not proved or shown conclusively that the transaction involves a going
concern.

9. 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. Such transfer of business as a
whole will comprise comprehensive transfer of immovable property, goods and transfer of
unexecuted orders, employees, goodwill etc. In the instant case, the Applicant has not
furnished any documentary evidence to establish that the Applicant is a going concern except
their admission that its an ongoing business and the transaction proposes to transfer all the
assets and liabilities to the new owner. It implies that the business will continue in the new
hands with regularity and a nature of permanency.

10. In view of the foregoing, we Rule as follows:

RULING

1. The transaction of transfer of business as a whole of one of the units of the Applicant
in the nature of a going concern amounts to supply of service.
2. The transaction of transfer of one of the units of the Applicant as a going concern is
covered under SI. No. 2 of the Notification No. 12/2017- Central Tax (Rate) dated
28.06.2017 subject to the condition that the unit is a going concern.

identical to the facts & circumstances of the Rajashri Foods (P.) Ltd. case, (supra) hence the
ruling is fully applicable to the applicant's case. The ld. Advance Ruling Authority, Karnataka
has given the ruling that:—

"1. The transaction of transfer of business as a whole of one of the units of the Applicant
in the nature of a going concern amounts to supply of service.

2. The transactions of transfer of one of the units of the Applicant as a going concern is
covered under Sr. No 2 of the Notification Nol2/2017-Central Tax (Rate), dated 28-06-
2017 subject to the condition that the unit is a going concern."

7. The applicant quoted the provisions of Section 18 of the CGST Act 2017 and Rule 41 of
CGST Rules and submitted that Section 18(3), read with Rule 41 allows the transfer of the
input tax credit shown in the account of the Applicant as balance of the Electronic Cash
Ledger and The Electronic Credit Ledger to the respective ledgers of M/s Bimal Aluminium
Pvt. Limited subject to observance of conditions prescribed in Rule 41 of CGST Rules.

After hearing the applicant in detail and discussions, the applicant was admitted as being
covered by section 97 (2) (d) & (e) of the CGST/HGST Act, 2017. As regard merits, the
decision was reserved which is being released today.