Many businesses change their structure for various reasons and purposes such as for betterment of business from declining phase or to increase the value of their business or to have potency in market competition. In recent times after the COVID 19 crisis, more businesses are restructured due to continuous losses or due to difficulties in continuation of business.
A business can also be discontinued due to various reasons such as death of proprietor/partner causing dissolution of legal entity, intentional closure of the firm/company, transfer of business to some other person etc.
Discontinuation of Business can be done in following ways:-
In this article, we have made an effort to analyze GST implications on different forms of discontinuation/ transfers of business.
This form of business discontinuation arises when a person sells all his stock and assets and later on proceeds to close the business.
In such scenarios, as stock and assets are sold in the regular course of business, therefore, GST at applicable rates must be charged at the time of supply. Further, as no supply of goods is taking place at the time of closure of business, therefore, no GST is applicable on the same.
In case of clearance of all stocks and assets before discontinuation, balance in Electronic credit ledger can be remained due to various reasons such as sale of stock on losses, reduction in GST rates on goods dealt with, e.g., GST @ 18% was applicable at the time of purchase of stock and later on reduced to 12% etc.
In such cases, no refund of balance lying in Electronic Credit Ledger shall be granted and the person may continue to surrender his GST registration number.
This scenario generally arises in case of discontinuation of business due to death of proprietor and consequently the entire business is being transferred to the legal heir/Successor of the proprietor.
In this case, the legal heir may either continue the business of the deceased proprietor by transferring his assets and liabilities. In case of continuation of business, the legal heir shall obtain a new GSTIN and he may transfer ITC lying in the Electronic Credit Ledger of the deceased proprietor to his GSTIN. Legal heir shall also be liable for payment of GST liability of the deceased proprietor.
In case of discontinuation of business, legal heir shall discharge GST on stock or capital goods held on the date of cancellation of GST registration of deceased proprietor.
Transaction of transfer of business with all assets and liabilities for a lump sum consideration, i.e., where values are not assigned to each asset and liabilities separately, is known as Slump sale.
Question whether transfer of business for lump sum consideration is considered as “Sale of Goods” and “Sales of service” is a matter of dispute since beginning and various Advance Ruling has been sought on this issue.
同様の質問が、M/s Rajashri Foods Private Limited（ARN. KAR ADRG 06/2018、2018年4月23日付）の件において、カルナータカ州の事前裁定当局（AAR）に提出されました。
AARは以下の見解を示しました。
2017年CGST法第7条(1)(d)と併せて読まれる付表IIには、「物品の供給またはサービスの供給として扱われる活動または取引」が規定されています。
参照用に、2017年CGST法付表IIの項目4(c)を以下に再掲します。
「4 事業資産の譲渡
(c) 課税事業者でなくなった者が、自己の事業の資産の一部を構成する物品を譲渡する場合、その者が課税事業者でなくなる直前に、自己の事業の過程または促進において供給したものとみなされる。ただし、以下の場合を除く。
(i) 事業がゴーイングコンサーンとして他者に譲渡される場合、または
したがって、付表IIの項目4(c)に基づき、事業資産を構成する物品の譲渡は、当該者が課税事業者でなくなる場合、「事業資産の譲渡」とみなされます。ただし、この規定は、事業がゴーイングコンサーンとして譲渡される場合には適用されません。
スランプセール（事業一括譲渡）の場合、事業全体がゴーイングコンサーンとして譲渡されます。したがって、このような譲渡は「物品の譲渡」とはみなされません。
2017年6月28日付の通知No. 12/2017-Central Tax(Rates)には、GSTが免除されるサービスの一覧が含まれています。同通知の項目2を以下に再掲します。
したがって、通知No. 12/2017-Central Tax (Rates)の項目2に基づき、ゴーイングコンサーンを前提とした事業譲渡は、免税対象となる「サービスの供給」とみなされます。
ウッタラーカンド州の事前裁定当局は、M/s Rajeev Bansal & Sudershan Mittalの件（裁定番号 09/2019-20、2020年1月9日付）において、「ゴーイングコンサーン」という用語を以下のように定義しました。
「7.5 ...金融取引の観点から『ゴーイングコンサーン』とは、その記述が適用される時点で、事業が存続または稼働しており、運営を維持するために必要なすべての要素や機能を備えていることを意味します。したがって、『ゴーイングコンサーンの譲渡』とは、簡単に言えば、買収者が独立した事業として継続可能な、稼働中の事業の譲渡と説明できます。」
したがって、事業がゴーイングコンサーンとして譲渡される場合、その取引は「サービスの供給」とみなされます。
他の様々なAARにおいても同様の立場がとられています。
通知No. 12/2017-Central Tax (Rate)に基づき、ゴーイングコンサーンを前提とした事業の供給は、無条件でGSTの支払いが免除されます。
スランプセールの場合、事業がゴーイングコンサーンとして譲渡されるのであれば、それは「免税供給」とみなされます。
As discussed above, as per Section 18(3) of CGST Act read with Rule 41 of CGST Rules, balance in Electronic Credit Ledger of the transferor can be transferred to through filing of Form GST ITC-02 by transferor on GST portal subject to fulfillment of other conditions discussed above.
In case of transfer of the whole business, the transferor is entitled to transfer the entire balance of unutilized ITC lying in the Electronic credit ledger to the transferee. However, In case of partial transfer of business, e.g. demeger or sale of segment only, transferor is eligible to transfer only proportional ITC pertaining to the segment transferred,
As per the Rule 41 of CGST Act, 2017, the ITC shall be apportioned in the ratio of value of transferred assets with the total value of Assets. The same can be understood by the following formula:
ITC entitled for transfer = ITC balance * Value of Assets which is transferred / Total Value of Assets
In case of Itemised sales, the entire business is not transferred to any person, rather few assets are transferred and where the value is assigned to each asset.
Entry No. 4(a) of Schedule II of CGST Act, 2017 is reiterated below:
“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, such transfer or disposal is a supply of goods by the person;”
Therefore, as per Entry No. 4(a) of Schedule II of CGST Act, transfer of business assets is considered as “Supply of Goods” and GST on the same shall be charged at the applicable rate.
Also, as there is no transfer of business taking place, therefore, there is no provision given for transfer of unutilised balance in Electronic Credit Ledger.
Therefore, in case of closure of business or dissolution of business due to death of proprietor or winding up of Company, mere surrendering a GST registration is not sufficient. Cancellation of GST registration does not put an end to liabilities of any person and appropriate action can be taken against such person in future date. Therefore, before surrendering GST registration, a person is required to look after all possible GST liability and applicable compliances.
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