[Opinion] Slump Sale: Key Consideration & Analysis under GST

Surjeet Singh Negi – [2022] 144 taxmann.com 159 (Article)

Definition

The term “Slump Sale” is defined under the provisions of the Income-tax Act, 1961 (‘the Act’), wherein transfer of a business undertaking as a going concern for a lump sum consideration qualifies as a slump sale.

Slump sale implies transfer of “undertaking” as a whole

As per Section 2(42C) of the Act defines slump sale to mean transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to individual assets and liabilities in such sales. For this purpose,

Explanation 1 to clause (19AA) of section 2 of the Act, explains that an “undertaking” shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity“.

Accordingly, so long as the subject matter of transfer is such that it answers even to the requirement of “part of the undertaking”, such that the transferee is able to step into the shoes of transferor in the matter of conduct of business on a going concern basis, the condition of “undertaking” should be regarded as satisfied. In other words, the “undertaking” should be ‘going concern’ and the undertaking so transferred should be such that it is capable of being run as independent “business” as a whole.

The key test of slump sale i.e. transfer of the undertaking on a going concern basis

The provisions of the Act relating to slump sale and judicial precedents require transfer of the undertaking on a going concern basis such that the entire business activity is transferred and capable of carried out as such.

A business undertaking is considered as a going concern which includes all rights, assets, contingent or definite, corporeal and incorporeal and all interest in advantage, present or future. Therefore, a unit should be regarded as an undertaking, transferred on a going concern basis when it has:

• Its Capital/funds/investment (s);
• Infrastructure (i.e. Land & Building, plant & machinery, office equipment etc.) required for rendering services;
• Personnel(s) / resource(s) to provide services etc.

Legal Provisions under GST with respect to slump sale

• Section 7 of Central Goods & Services Tax Act’2017 (“CGST Act”) provides for scope of supply. The relevant extracts of the section has been provided below for reference:

“(1) For the purposes of this Act, the expression “supply” includes,-
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
………………………..
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(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.”

The above criteria of scope of supply implies that the activity undertaken shall be an action which takes place in the course of regular conduct of business and such as sale should have the effect on furtherance of the business. Therefore the activity to be called as supply should amount to conduct of business. Apparently, the transfer of a going concern, either as a whole or an independent part thereof, for a lump sum consideration does not constitute an activity taking place in course or furtherance of business. However the word ‘includes’ has been used in Section 7(1) above has vide meaning of expression ‘in course or furtherance of business’. Therefore in the case of transfer as a going concern even if such act does not constitutes an activity in regular course of business, the activity may still qualify to be termed as a supply.

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