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GST Applicability on Closure or Discontinuation or Transfer

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GST Applicability on Closure or Discontinuation or Transfer

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  1. GST Applicability on Closure or Discontinuation or Transfer of Business

  2. 1. Closure of business without transfer of stock and other assets • 1.1 GST on sale of stock and asset • 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. • 1.2 Treatment of Balance Lying in Electronic Credit Ledger • 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

  3. 2. Transfer of business of deceased person to legal heir without any consideration • 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.

  4. GST implication on Transfer/ sale of business as slump sales / Lump sum considerations • 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. • Same question was placed before the Hon’ble Authority of Advance Ruling (“AAR ”) of Karnataka in the matter of M/s Rajashri Foods Private Limited (ARN. KAR ADRG 06/2018 dated 23rd April, 2018). • Hon’ble AAR held following points: • As per Section 7 of CGST Act, 2017, “Supply” includes activities such as sales, transfer, bater, exchange, etc. made for a consideration in the course or furtherance of business. • Activity of transfer of business on a going concern basis for a lump sum consideration does not constitute as activity carried out in course or furtherance of business. However, Section 7 provides an inclusive definition of term “Supply” and therefore, even if transfer of business on a going concern basis has not been carried out in course or furtherance of business the same shall still be considered as “Supply” under GST.

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