Transfer of Business Assets (GST) - "Some interesting controversies"

Schedule II (refer section 7)

ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

4. Transfer of business assets

(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;

(b) where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services;

(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.

Concluding notes/ some issues :

1- Clause (a) -some important pointers --

## There should be a business to make this clause applicable,

## It is interesting to note that the sec 7(1) a define the word "supply" which includes transfer & disposal and many more instances which would be treated as supply of goods & services or both however the word "transferred or disposed of" has not been defined in the act,

## Usually finance lease are known where an asset is longer under the substance ownership once transferred and hence applicability of this clause should be analysed,

2- Clause (b) - some important pointers -

## this clause deals situations where assets are being used other than business purposes, which would then be treated as supply of SERVICES which is more on Operating lease (on some rental income for the use of less significant life of such asset),

## there is no guidance available which talks about the duration of such usage to make the transaction liable for GST,

## It says "made available to any person for use" which means including employees or not has not expressly defined,

## "for purpose other than a purpose of business" which means it would cover e.g. laptop given to an employee who uses it for personal purposes also..such situation would be analysed carefully,

3- Clause (c) - some important pointers -

## clause a and c whether should be read in isolation or apply together of one is a matter of debate, if you notice that both clauses allow partial transfer of such goods,

## Requirement to remain as going concern is still can be satisfied in clause (a) also,

## there is a lack of clarity that whether the transferee can be a person not registered under the GST act?

## eventually it should include any slump sale however it has not been expressly defined in the act,

These are some of the areas (not an exhaustive list) where all such M&A activities need to take care of and any wrong interpretation could lead towards interest payments and/or penalties..

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