An Advanced Authority Ruling (AAR) has upheld that merger of a proprietorship firm as a going-concern with a company is not a supply and hence it does not involve payment of Goods and Services Tax (GST) on the fixed or current assets.

Also, un-utilised ITC (Input Tax Credit) balance of the firm can be transferred to the company which is taking over, the ruling said.

The petitioner argued that the merger will be for consideration based on the valuation of assets and liabilities on the date of merger. All the assets and liabilities of applicant to be taken over by the company and business of the firm will continue to be run by the company. Accordingly, it was mentioned that such transaction should not be construed as ‘supply’ as defined under Section 7 of the CGST Act, 2017.

The term ‘supply’ includes sale, transfer, barter, exchange made for a consideration in the course of or for furtherance of business. It was also said that the transfer of the applicant’s business as a going-concern to a private limited company is not in the ordinary course of business or for the furtherance of business. The selling of business is an extraordinary activity and not the business of the applicant and hence the activity cannot be termed as supply as per Section 7.

After considering the legal position and facts in the matter, the AAR found merit in the arguments of the applicant and held that there are specific provisions under the GST laws which deal with the taxability of the transaction where the business is transferred as a going-concern.