Question

Mary and Tony have owned a bookshop in Ryde for many years and their business has been very
successful. In January 2020, they were approached by a major competitor to buy the business. Mary and
Tony carry on the bookshop business as partners and also own adjacent premises that are used mainly
as a warehouse for their trading stock. The potential purchaser is only willing to buy the bookshop, and
not the adjacent premises because it already has adequate storage space.
Mary and Tony are quite excited about the offer as this will allow them to have a bit of a break after
working long hours running the business. They are unsure whether there will be any GST consequences
from selling the business.
(1) Explain the GST consequences arising from the sale of the business.
(2) What steps could be taken by the parties to reduce the GST consequences?

In sec 38-325 you need to supply everything necessary to carry on a business. mention all the condition of that section and how it has meet those criteria there are 5 conditions not just two, and HOW GST consequences can be different in question 2

Answer 1

Supplment/Guides

Transfer of business is majorly done in any one of the following ways –

a) Slump sale

b) Itemized 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 sale.

Where values are assigned to each of the assets transferred, then such transfer is called itemized sale.

Whether transfer of business is goods or a service?

In terms of Sec. 2(52) of CGST Act, 2017, “goods means every 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”. Therefore, to be called as goods, it has to be movable property. As business cannot be said to be movable, transfer of business cannot be said to be a transfer of goods.

Now, we shall examine whether the said transaction can be called as service.

In terms of sec. 2(102), services mean anything other than goods. The term service is wider in its scope. As it covers anything other than goods, transfer of business which cannot be considered transfer of goods will fit into the definition of “service”. Further, in case of the judgment given by Andhra Pradesh High Court in case of Paradise Food Court v. State of Telangana 2017 VIL 238 AP in the context of VAT Law, it was held that the “business” is not movable property and is, therefore, not goods. Hence, based on the above we can conclude that transfer of business is a service.

In the case of itemized sale, if the business is not transferred as a going concern then the same shall be treated as sale of goods in accordance with entry no. 4(c) of Schedule II of CGST Act, 2017. (detailed discussion follows in subsequent paras).

As per Entry No. 2 of Notification No. 12/2017–Central Tax (Rate) dated 28^th June 2017, services by way of transfer of a going concern as a whole or an independent part thereof is exempted from GST.

Hence, in order to avail the above exemption, the following conditions shall be satisfied –

• The transfer of business shall be transfer of a going concern.
• The business which is being transferred shall be transferred as a whole or independent part.

1.
In our case, Competitor is buying only the books not the whole business, so it shall be considered as sale of business at item wise, which can be considered under GST as sale of goods therefore, liable to GST

2,

When Mary and Tony will sell the complete business including bookshop and adjacent premises, it shall be considered as sale of services which is exempt under GST, therefore not liable to GST