[2021] 127 taxmann.

com 899 (Article)

[2021] 127 taxmann.com 899 (Article)
Date of Publishing: June 30, 2021

Slump Sale - GST Implications

RAHUL AIRAN
B.Com (Hons)

INTRODUCTION:

Analysis of term "Slump Sale"

"Slump Sale" is not defined under the GST law. Therefore reference is invited to the Income-tax Act, 1961 which brought
the concept of Slump Sale.

INCOME TAX ACT, 1961

SECTION 2(42C) - SLUMP SALE

"slump sale" means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without
values being assigned to the individual assets and liabilities in such sales.

Explanation 1.—For the purposes of this clause, "undertaking" shall have the meaning assigned to it in Explanation 1 to
clause (19AA).

Further as per explanation 1 to Section 2 (19AA), "undertaking" shall include any part of an undertaking, or a unit or
division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or
any combination thereof not constituting a business activity. From the bare perusal of the above provision, Slump Sale
contains the following elements:

i.   Sale of one or more undertaking for a lump sum consideration

ii.   No individual value should be assigned to assets and liabilities
iii.   All assets and liabilities of the undertaking must be transferred
Further the term "undertaking" implies any part of an undertaking or a business activity as a whole.

Whether certain assets or liabilities can be retained by the transferor under Slump Sale?

Attention is invited to the case of Triune Projects (P.) Ltd. v. Deputy Commissioner of Income-tax [2017] 77 taxmann.com
40 wherein Delhi High court held that if certain assets or properties are left out because they would cause inconvenience or
lead to some kind of a trouble for the purchasing party, it is well within its right to exclude it from the list of assets and it
would still construed as "Slump Sale".

The relevant extract of the judgement is reproduced below:

  "10. ** ** **

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .This Court had affirmed the

decision of the ITAT to the effect that the transaction was not a sham or was not a colourable device. In these
circumstances, unless there are exceptional facts to the contrary, the same finding has to be maintained in the case of
the seller - which the assessee too was. So far as the Revenue's contentions with respect to the retention of two
assets that were not sold as a part of the going concern by the assessee is concerned, we find the argument is
insubstantial. ……………..
11. This definition of "undertaking" is what has been engrafted into by reference, under section 2(42C) of the Act.
Therefore, if certain assets or properties are left out because they would cause inconvenience or lead to some kind
of a trouble for the purchasing party, it is well within its right to exclude it from the list of assets."

Similar view has been expressed by Punjab and Haryana High Court in case of Commissioner of Income v. Max India Ltd.
[2009] 178 Taxman 196/319 ITR 68 wherein it upheld the order of the tribunal. The extract of the order of the tribunal is
reproduced below:

"29. From the above, it is evident that for a sale to be termed as a 'slump sale', it is not essential that all the
assets and liabilities must be transferred. Even if some assets and liabilities are retained by the transferor, the
sale would not lose the character of being a slump sale, if the transfer is of a going concern, on that basis and the
transferee is in a position to carry on the business without any interruption. In the present case, the right to use the
technical know-how developed by the assessee was granted by the assessee to the transferee against the payment of a
separate consideration. The proprietary rights therein were retained till June 30, 2000. On facts, in view of the above
numerous judicial pronouncements, it cannot be said that what the transferee acquired was not a going concern.
Rather, after the transfer, the transferee carried on the business without any disruption therein. In CIT v. West Coast
Chemicals and Industries Ltd. (In Liquidation) [1962] 46 ITR 135 (SC), CIT v. F. X. Periera and Sons
(Travancore)Pvt. Ltd. [1990] 184 ITR 461 (Ker), Premier Automobiles Ltd. v. ITO [2003] 264 ITR 193 (Bom) and
Asst. CIT v. Raka Food Products [2005] 277 ITR 261 (Mad), amongst others, it has been held that in the case of a
sale of an undertaking as a whole, on a going concern basis, if some assets are retained by the transferor or some
liabilities are not taken over by the transferee, this fact does not render the slump sale as not a slump sale. A
similar view has been expressed by the Delhi Bench of the Tribunal in I.T.A. Nos. 2584/Delhi/2003, for the
assessment year 1999-2000 and 5507/Delhi/2003, for the assessment year 2000-01, in the case of M/s. ECE
Industries Ltd., vide order dated September 29, 2006(copy placed on record). Therefore, the findings of the learned
Commissioner of Income-tax (Appeals) in this regard are upheld."
Thus it can be concluded that if some assets and liabilities are retained by the transferor, it does not change the
status of "Slump Sale" to "Not Slump Sale".

Whether GST is applicable on 'transfer of business as a going concern/Slump Sale'?

As per Section 9 of CGST Act, 2017 (hereinafter referred to as the "said Act"), levy of tax is on supply of goods or
services or both. Therefore, taxable event under GST law is triggered provided a transaction falls within the ambit of the
term 'supply'. One can find scope of supply u/s 7 of the said act from which it can be derived that for any activity or
transaction to constitute supply the consideration should be there and supply should be made in the course or furtherance
of business. Whether transfer of business as a going concern/slump sale is in the course or furtherance of business?

The relevant extract of the definition of 'Business' is reproduced below:

SECTION 2(17) -BUSINESS

 (d) supply or acquisition of goods including capital goods and services in connection with commencement orclosure
of business

In the light of the above definition, it can be held that supply of goods or services in connection with the commencement
or closure of business i.e., in connection with the transfer of business is in the course or furtherance of business.
Similar view is expressed by Uttarakhand Authority for Advance Ruling in case of Innovative Textiles Ltd., In re
[2019] 104 taxmann.com 436/73 GST 714. The relevant extract of the ruling is reproduced herein below:

"7.5 From the above definition of the "business" we find that the acquisition of goods/services for commencement of
is covered under the said definition."
An alternative view is given by Karnataka Authority for Advance Ruling in case of Rajashri Foods (P.) Ltd., In re
[2018] 93 taxmann.com 41768 GST 457wherein it was held that transfer of business as a going concern is not in the course
or furtherance of business but the scope of supply is wide enough that the activity may still qualify to be termed as supply
because of the inclusive definition of "supply". The relevant extract of the ruling is reproduced herein below:

"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."
Now, to fall within the ambit of term "supply", it has to be seen whether the captioned transaction is covered under the
expression "goods" or "services". Clause (52) and (102) of section 2 of the said Act defines said terms as follows:

SECTION 2(52)- GOODS

"goods" meansevery kind of movable property other than money and securities but includes actionable claim,
growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply
or under a contract of supply
SECTION 2(102) - SERVICES

"services" means anything other than goods, money and securities but includes activities relating to the use of
money or its conversion by cash or by another mode, from one form, currency or denomination, to another form,
currency or denomination for which a separate consideration is charged

In bare perusal of the above definitions, it can be said that every kind of movable property other than money and securities
are 'goods' as envisaged under section 2 (52) of the said act and anything other than goods, money and securities are
'services' as envisaged under section 2 (102) of the said act. Since all the conditions of sub-section (1) to fall within the
ambit of the expression "supply" are satisfied, it can be said that transfer of business as going concern is covered under the
expression "supply"

Further sub-section (1A) of Section 7 of the said act states that 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.

Para 4(c) of Schedule II to CGST Act, 2017 is reproduced herein below:

SCHEDULE II - ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

 (4) Transfer of business assets

  (a) to (b). ** ** **

(c) 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 a 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.
In the bare perusal of the above provision, it can be held that where any person ceases to be a taxable person, goods
forming part of the business assets shall be deemed to be supplied by him in the course or furtherance of business and that
supply shall be considered as "supply of goods". But if the business is transferred as a going concern to another person, it
shall not be considered as "supply of goods". In this context, it can be further said that if the business is transferred as a
going concern, then it shall be considered as "supply of services" because anything other than "goods" is "service" as
envisaged under section 2 (102) of the said act.

Hence it can be concluded that transfer of business as going concern/Slump Sale is "supply of services"

Similar view is expressed by Karnataka Authority for Advance Ruling in case of Rajashri Foods (P.) Ltd.
(supra)wherein it was held that the transaction of transfer of business as a whole of one of the units in the nature of a going
concern amounts to supply of service.

Also, Andhra Pradesh Authority for Advance Ruling in case of Shilpa Medicare Ltd., In re [2020] 117 taxmann.com
806/[2016] 84 GST 68hold the similar view. The relevant extract of the ruling is reproduced herein below:

"A plain reading of the above clarifies that the transfer of business assets is 'supply of goods'. But in the instant case
the business in its entirety is transferred or sold along with capital assets. Thus, it disqualifies the going concern' to
be grouped under 'supply of goods' as per the above-mentioned clause 4(c).
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Thus, the definition of services qualifies 'anything other than goods' as service. In this context it is obvious that the
'going concern', which was excluded form list of 'supply of goods' as discussed above, would automatically fall under
'supply of services'
."

Further, attention is invited to serial no. 2 of the Notification No. 12/2017-CentraI Tax (Rate) dated 28-6-2017 which
holds thatservices by way of intra-state transfer of a going concern, as a whole or an independent part thereof shall attract
"nil" rate of tax and shall be regarded as exempt supply. The relevant portion of the said Notification is as under:

Sl. Chapter, Section, Heading, Group Description of Services Rate Condition

No. or Service Code (Tariff) (percent)
(1) (2) (3) (4) (5)
2 Chapter 99 Services by way of transfer of a going concern, as a Nil Nil
whole or an independent part thereof
Thus on perusal of serial no. 2 of the said notification, it can be held that the services by way of intra-state transfer of a
going concern, as a whole or an independent part thereof is to be treated as supply of service and covered under chapter 99
of the Service Code (Tariff) and is exempted from GST.

Similar view has been expressed by Uttarakhand Authority for Advance Ruling in case ofInnovative Textiles Ltd.
(supra), Andhra Pradesh Authority for Advance Ruling in case of Shilpa Medicare Ltd. (supra), Karnataka Authority
for Advance Ruling in case of Rajashri Foods (P.) Ltd.(supra), Haryana Authority for Advance Ruling in case of B.M.
Industries, In re [2019] 102 taxmann.com 282.

Which tax paying document is issued in case of "transfer of business as a going concern/Slump Sale"?

Transfer of business as a going concern/slump sale is an exempted supply of services in terms of serial no. 2 of the
Notification No. 12/2017-Central Tax

(Rate) dated 28-6-2017.

In case of exempt supply, bill of supply shall be issued as envisaged under section 31(3)(c) of the said Actcontaining such
particulars as prescribed in Rule 49 of the CGST Rules, 2017. Further if tax invoice or any other document has been
issued for exempt supply (non-taxable), then such tax invoice or document shall be treated as 'bill of supply' for the
purposes of this act in terms of second proviso to Rule 49.

Whether there is requirement of Reversal of ITC?

Section 17(2) of the said act is reproduced below:

SECTION 17 - APPORTIONMENT OF CREDIT

(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies
including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for
effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is
attributable to the said taxable supplies including zero-rated supplies.

On bare perusal of the above provision, it can be held that the supplies of goods or services or both which are used directly
in relation to supply of business transfer shall not be eligible for input tax credit. Also, the proportionate input tax credit of
common supplies shall also be reversed in such manner as envisaged under Rule 42 and Rule 43 of CGST Rules, 2017.
The exempt supply for the purpose of section 17(2) does not exclude the Slump sale or business transfer as a whole or part
thereof. Therefore, ITC shall be required to be reversed in case of Business Transfer/Slump sale.

Whether ITC can be transferred from the transferor company to the transferee company?

The relevant provisions regarding transfer of ITC are reproduced below:

SECTION 18 - AVAILABILITY OF CREDIT IN SPECIAL CIRCUMSTANCES

(3) 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 may be
prescribed.

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, de-merger, amalgamation, lease or transfer or change in
 the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or
transfer of business, inFORM 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.
  Explanation:- For the purpose of this sub-rule, it is hereby clarified that the "value of assets" means the value
of the entire assets of the business, whether or not input tax credit has been availed thereon.
(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, de-merger, 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 un-utilized credit specified inFORM GST ITC-02shall 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.
On bare perusal of the supra mentioned provisions, it can be said that in case of transfer of business/Slump sale, the
transferor shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such
transferred business by furnishing FORM GST ITC-02.

The view regarding transfer of unutilized ITC in case of transfer of business as a going concern/Slump sale has also been
expressed by Haryana Authority for Advance Ruling in case of B.M. Industries(supra) and Andhra Pradesh Authority
for Advance Ruling in case of Shilpa Medicare Ltd.(supra)

If some of the assets and liabilities are retained by the transferor, then it can be said that there is partial transfer of business
as a going concern. The proviso to sub-rule (1) of Rule 41 specifically deals with the case of 'demerger'. It implies that the
captioned proviso is restricted only to the case of 'demerger'.

Further, attention is invited to para 3(b) of the Circular No. 133/03/2020 dated 23rd March, 2020 which states that the
formula for apportionment of ITC, as prescribed under proviso to sub-rule (1) of rule 41 of the CGST Rules, shall be
applicable for all forms of business re-organization that results in partial transfer of business assets along with liabilities.

Thus it can be held that the proviso to sub-rule (1) of Rule 41 is also applicable to other forms of reorganisation i.e.
transfer of business which states that the input tax credit shall be apportioned in the ratio of the value of assets of the new
units and "value of assets" means the value of the entire assets of the business, whether or not input tax credit has been
availed thereon. The supra mentioned circular clarifies other related issues also.

CONCLUSION

In light of the supra discussions, the following can be concluded:

1.   if some assets and liabilities are retained by the transferor, it does not change the status of "Slump Sale" to "Not
Slump Sale".
2.   'transfer of business as a going concern/Slump Sale falls within the ambit of supply as envisaged in section 7 of
the CGST Act, 2017 and is regarded as 'supply of services'. Further the captioned transaction is exempt supply
and attract 'nil' rate of tax in terms of serial no. 2 of the Notification No. 12/2017-CentraI Tax (Rate) dated 28-
6-2017
3.   in case of 'transfer of business as a going concern/Slump Sale' which is an exempt supply, bill of supply shall be
issued as envisaged under section 31(3)(c) of the CGST Act, 2017 containing such particulars as prescribed in
Rule 49 of the CGST Rules, 2017. Further if tax invoice or any other document has been issued for exempt
 supply (non-taxable), then such tax invoice or document shall be treated as 'bill of supply' for the purposes of
this act in terms of second proviso to Rule 49.
4.   the supplies of goods or services or both which are used directly in relation to 'transfer of business as a going
concern/Slump Sale' shall not be eligible for input tax credit in terms of sub-section (2) of section 17 of the
CGST Act, 2017 . Also, the proportionate input tax credit of common supplies shall also be reversed in such
manner as envisaged under Rule 42 and Rule 43 of CGST Rules, 2017.
5.   unutilized ITC can be transferred in case of transfer of business as a going concern/Slump Sale as envisaged
under section 18 (3) of the said act in such manner as prescribed under Rule 41 of the CGST Rules, 2017 read
with Circular No. 133/03/2020 dated 23rd March, 2020
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