1. Going Concern

Facts : The applicant, is inter alia engaged in cable operation business. The applicant is a Multi-System Operator (‘MSO’) and purchases digital signals from broadcasters. These signals are transmitted through satellite to receiving stations owned by MSOs. MSOs further transmit these signals through cables to the Local Cable Operators (‘LCO’) who own their last-mile network to individual homes and customer premises. M/s. ACN Cable Private Limited is inter alia engaged in provision of similar services where it receives broadcasting signals and transmits them to individual customers through LCOs.

ACN has entered into a Business Transfer Agreement with the applicant. In terms of the Agreement, ACN has agreed to purchase entire cable operation business of seller. All rights, title and interest in and to the business, assets, subscribers/ customers, linked LCOs will get Transferred from applicant to ACN as a going concern except the liabilities which have presently arisen or will arise for the past business relationship/ earlier period and the employees.

The applicant has raised following question before the AAR : Whether SI.No.2 of the Notification No.12/2017 – Central Tax (Rate) dated June 28th, 2017 (‘Service Exemption Notification’) granting exemption to ‘Services by way of transfer of a going concern as a whole or an independent part thereof’ is applicable on the business transfer undertaken in the present instance?

Observations & Findings : On perusal of the facts, it is noticed that the applicant’s Business as MSO sought to be sold is in functioning state and the transaction by virtue of the Business Transfer Agreement contemplates the sale of business to the purchaser, except any of the employees or liabilities and the purchaser intends to continue the same business.

The term ‘going concern’ is defined nowhere in the CGST Act. Hence, the term is taken in its common parlance as used in trade. The running business, when sold in its entirety or a branch of the business, it is considered a going concern in lock, stock and barrel.

The concept of transferring a company as a ‘going concern’ was examined by the Delhi High Court in the land mark judgment of In re Indo Rama Textile Limited (2013) 4 Comp LJ 141 (Del). In this case the Delhi High Court held that a company is said to be transferred as a ‘going concern’ when the assets and liabilities being transferred constitute a business activity capable of being run independently for a foreseeable future. The Supreme Court in Allahabad Bank vs. ARC Holding AIR 2000 SC 3098 (Allahabad Bank case) held that if the company is sold off as a ‘going concern’, then along with the assets of the company, if there are any liabilities relevant to the business or under taking, the liabilities too are transferred.

In view of the judicial precedents as mentioned above it is evidently clear that the transaction of ‘transfer of business’ in the instant case does not fit in the definition of a ‘going concern’ in the context of exclusion of liabilities.

Hence, the entry at serial No.2 of the chapter 99 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 prescribing the rate of tax for ‘the services by way of transfer of a going concern as a whole or an independent part there of’, as “NIL” rated, is not applicable to the present case.

Ruling

Question: Whether SI.No.2 of the Notification No.12/2017 – Central Tax (Rate) dated June 28th, 2017 (‘Service Exemption Notification’) granting exemption to ‘Services by way of transfer of a going concern as a whole or an independent part thereof’ is applicable on the business transfer undertaken in the present instance?

Answer: Negative.

[2021 (8) TMI 523 – AAR, Andhra Pradesh – M/s SCV Sky Vision]

2. Taxable Supply

Facts : The Applicant is engaged in the business of pulses and dalls with a facility in its mill to convert pulses into dalls. The Andhra Pradesh state civil supplies corporation, limited, which is a State Government undertaking engaged in the business of supplying essential commodities to the Fair price shops for public distribution, has given a work order to the applicant. The applicant is appointed as miller cum transporter for conversion and supply of resultant red gram dall to allotted districts in 1 kg packets. The supply involves the following services:

1. Lifting of Red Gram from the Godowns of the recipient and transportation to the dall mill.

2. Conversion of Red gram into dall (milling)

3. Packing the Red gram dall in the specified manner.

The applicant receives consideration for the above services, besides incidental charges for un-milled Tur.

The applicant’s main contention is that whether the supply of red gram dall by receiving indigenous red gram under barter system attracts any tax under GST.

The applicant submitted that, in respect of the above transaction, whole red gram was purchased before hand and it was converted into dall and supplied in advance to the corporation. Subsequently after receipt of dall, Corporation has sent whole red gram to the applicant as per its convenience and availability.

The applicant has raised following questions raised before the authority:

1. Whether the supply of red gram dall receiving indigenous red gram under barter system attracts any tax under GST?

2. Whether the packing charges received by the applicant for packing 1 Kg. of red gram dall supplied to the said Corporation are taxable?

Observations & Findings : We examine whether the activity of milling of whole red gram to red gram dall by the millers is liable to GST or not. The clarification issued in this regard on the custom milling of paddy is applicable as well in the instant case. F.No.354/263/2017-TRU by the Government of India, Ministry of Finance, in its letter dated 20.11.2017 clarifies as follows;

“3. Milling of paddy is not an intermediate production process in relation to cultivation of plants. It is a process carried out after the process of cultivation is over and paddy has been harvested. Further, processing of paddy into rice is not usually carried out by cultivators but by rice millers. Milling of paddy into rice also changes its essential characteristics. Therefore, milling of paddy into rice cannot be considered as an intermediate production process in relation to cultivation of plants for food, fibre or other similar products or agricultural produce.

4. In view of the above, it is clarified that milling of paddy into rice is not eligible for exemption under S. No. 55 of Notification 12/2017-Central Tax (Rate) dated 28th June 2017 and corresponding notifications issued under IGST and UTGST Acts.

5. GST rate on services by way of job work in relation to all food and food products falling under Chapters 1 to 22 has been reduced from 18% to 5% vide notification No. 31/2017-CT(R) [notification No.11/2017-CT (Rate) dated 28.06.17. S.No.26 refers]. Therefore, it is hereby clarified that milling of paddy into rice on job work basis, is liable to GST at the rate of 5% on the processing charges (and not on the entire value of rice).”

Thus, the milling of Red gram fall under the Serial No.26 Heading 9988 (i) (f) of the Notification no.11/2017 Central Tax Rate dated 28.06.2017 and as amended from time to time and liable to tax @ 5%.

In the instant case, the custom milling is the principal supply, while the packing charges received by the applicant for packing of I Kg. of red gram dall supplied to the said Corporation constitutes ancillary supply. As seen from the agreement, it is a single contract of composite supply comprising of two or more taxable supplies like milling, transportation and packaging services. Out of which, milling is the principal supply and the rest of the supplies are liable to be taxed at the same rate of principal supply.

Ruling

Question: Whether the supply of red gram dall 2600 MTs by receiving 3823.529 MTs of red gram under barter system attracts any tax under GST?

Answer: The transaction cannot be considered as ‘barter’, but a ‘job work’ and attracts the tax rate of 5% under Serial No.26 Heading 9988 (i) (f) of the Notification No.11/2017 Central Tax Rate dated 28.06.2017 as amended from time to time.

Question: Whether the packing charges of ₹ 4.50 received by the applicant for packing 1Kg. of red gram dall supplied to the said Corporation are taxable?

Answer: Affirmative.

[2021 (8) TMI 524 – AAR, Andhra Pradesh – M/s Seetharamanjaneya Dal and Fried Gram Mill]

3. Exempted Supply

Facts : The applicant, is a manufacturer of product ‘Lassi’ will be named as ‘Laban’ and sold under Brand name of ‘Elan’.

The applicant has raised the followings Question on which Advance Ruling sought?

1. Whether product manufactured as ‘Lassi’ but named as ‘laban’ can be classified as Lassi under Description of Goods?

2. Is the goods taxable or exempted?

3. If exempted, HSN of the Product and rate of tax on product.

4. If taxable, HSN of product and rate of tax on product.

Observations & Findings : We note that Lassi is a fermented milk drink and its main ingredients are curd, water and spices. We have noted the manufacturing Process submitted by the applicant. On reading the contents of the subject goods displayed on the bottle of ‘laban’, we find following ingredients printed on the bottle: Pasteurized toned milk, spices, pudina, green chilli, ginger, salts, active culture, added nature identical flavour and stabilizer (INS440). Further, on the bottle of ‘laban’ we note that ‘‘Dairy based fermented Drink’ is printed. The product would fall under the HSN 0403.

Inferring from the manufacturing process submitted and the contents of the subject goods printed on its bottle, we hold subject goods are Lassi. We find goods ‘Lassi’ is described at Sr. No.26 of Notification No.2/2017-Central Tax (Rate) dated 28-6-17.

Ruling : The goods are classified as Lassi at HSN 040390 and is exempt from GST.

[2021 (8) TMI 784 – AAR, Gujarat – M/s Sampoorna Dairy and Agrotech LLP.]

4. Import of Service

Facts : The applicants are Non-vessel owner container carriers/ Operators (NVOCC) who are based in India but lease containers from suppliers outside the country and in turn use it in transportation of bulk chemicals.

The applicant entered into a lease purchase agreement from supplier located outside the Country. In terms of this agreement the applicant pays lease rentals every month and he is entitled for the purchase of the container during the period of lease or at the end of the lease period by paying the agreed rate. The applicant further contended that the said transfer of title occurred on a future date in pursuance of a pre-existing lease agreement and the supplier transfers title only after payment of full consideration as per terms of agreement. the applicant sought Advance Ruling on the following issues:-

Is GST liable to be paid on leasing of tank containers taken form a supplier i.e., lessor who is located outside India and the tank containers do not reach India? As it is finance lease, it is supply of goods and tank containers do not reach the Indian Territory.

The applicant submits that they have recognized the tank containers and assets in the books of account from the inception of the lease and there is certainty that the same would be purchased later. Therefore the applicant is of the opinion that this transaction is a transaction for supply of goods from the inception of the agreement in terms of SL.No.1(c) of Schedule II to Section 7.

Observations & Findings : A plain reading of the relevant terms of the contract clearly indicate the consensus ad idem or the meeting of minds between the parties to the contract that the agreement is prima facie for lease. There is no fixed lease term but the contract only mentions minimum lease period which may extend beyond such minimum period.

There is no binding obligation for purchase of the goods at the end of the lease term. The agreement does not confer any title upon the lessee but a mere option to purchase based on fulfilment of certain conditions.

Clearly the agreement does not fulfill the conditions mandated under Entry 1 (c) of Schedule II to the CGST Act i.e.,

1. The agreement should leave no scope for uncertainty regarding the transfer of property.

2. The agreement should not provide for an option to purchase the goods at the end of the lease period but shall make it an obligation on the part of contracting parties to necessarily transfer such property.

3. The agreement which shall not leave any option for return of the goods.

4. The terms in the copies of agreements submitted by the applicant it is amply clear that the leasee may or may not take final possession of the goods.

As per the statutes there is a binding obligation on the parties to the agreement to complete the sale i.e. Transfer of title as well as property whereas in the present case there is no such obligation but there is an option for the lessee to either purchase the goods or return them to the lessor. There is even a clause in the agreement as to the (condition and) place where the goods can be returned on termination of the lease.

Where there is such an option available to the lessee, the transaction does not fall under entry 1(c) of Schedule II to the CGST Act, 2017.

Ruling : The applicant is liable to pay IGST on importation of lease services into India in light of the above discussion.

[2021 (8) TMI 892 – AAR, Telangana – M/s Deccan Transco Leasing P Ltd.]