In Advance Ruling No. KAR ADRG 12/2023 - AAR - Transaction of transfer of business divisions of Pico2femto Semiconductor Services Private Limited constitutes ‘Supply’ under Central Goods and Services Tax; Applicable GST on the transaction is 18%: AAR (Karnataka)
Members M.P. Ravi Prasad & Kiran Reddy [20-03-2023]

Read Order: In Re: Pico2femto Semiconductor Services Private Limited

Chahat Varma

New Delhi, June 3, 2023: The Karnataka bench of the Authority for Advance Rulings has ruled that the transaction of transfer/sale of one of the independent running business divisions of the applicant (Pico2femto Semiconductor Services Private Limited), namely, ‘business of providing/supplying of engineering services primarily relating to semi-conductor services’ as a whole, along with all the assets and liabilities of the independent business division on a going concern basis, in terms of business transfer agreement dated entered into by the applicant with M/s Tessolve Semiconductor Private Limited, constituted a transaction of ‘supply’ under Section 7 of the Central Goods and Services Tax (CGST) and Karnataka State Goods and Services Tax (KGST) Acts.

The Authority held that the activity of the applicant, which involved the transfer of their staffing business, fulfilled the criteria of supply as defined in Section 7 of the CGST Act 2017. The Authority noted that the transfer of the business constituted a form of supply of goods or services or both, as agreed upon by the applicant. The transaction involved consideration, which was to be received in multiple stages, along with a performance guarantee and revenue sharing and additionally, the applicant intended to sell the staffing business in the course of their business operations. Based on these factors, it was determined that the activity of the applicant qualified as a supply under the CGST Act.

The Authority further held that in the instant case, the supplier i.e., applicant and the recipient of the supply were not related and the price was the sole consideration for the supply, thus the value of the impugned supply shall be the transaction value, which was the price actually paid or payable.

Based on the observation that the impugned transaction classified as a financial service, the Authority determined that the applicable GST rate for the transaction was 18%.

The Authority further determined that since an independent part of the applicant's business (staffing division) was being transferred or sold, the benefit of Sl. No. 2 of notification No.12/2017-Central Tax (Rate), dated 28th June 2017 was applicable to the transaction, subject to the fulfilment of the condition/s of a going concern.