Transfer of Business as a Going Concern Is Not Taxable ‘Supply’ Under GST: AP HC

The Andhra Pradesh High Court has set aside an order passed by the Appellate Authority for Advance Ruling (AAAR), holding that the transfer of an entire business undertaking as a “going concern” does not amount to a taxable supply of goods. The bench of Justice R. Raghunandan Rao and Justice T.C.D. Sekhar has observed that GST is levied only on supplies made in the course or furtherance of business, and not on the sale of the business itself. Since the Vizianagaram R&D unit was transferred as a complete and independent undertaking, the transaction could not be artificially dissected into individual supplies of goods. While the Court noted that Notification No. 12/2017 treats transfer of a going concern as a supply of service exempt from tax, it also raised a broader question on whether such transfers fall within the charging provisions of the GST Act at all. However, this issue was left open, as the transaction would remain tax-free in any case due to the exemption. Shilpa Medicare Limited operates research and development (R&D) centres in multiple States, including Andhra Pradesh and Karnataka. In 2019, the company decided to transfer its R&D unit located at Vizianagaram, Andhra Pradesh, to its Bengaluru unit in Karnataka. A Business Transfer Agreement dated 26 June 2019 was executed, under which the Vizianagaram R&D unit was transferred as a going concern, along with all assets, liabilities, employees, intellectual property, and records. Notably, the transfer was effected without any monetary consideration. Seeking clarity under the GST law, the company approached the Authority for Advance Ruling (AAR) on three issues whether the transaction constituted a supply of goods or services, whether it was exempt under Notification No. 12/2017 (exemption for transfer of a going concern), and whether unutilised ITC of the Andhra Pradesh unit could be transferred to the Karnataka unit through Form GST ITC-02. The AAR ruled in favour of the company, holding that the transaction amounted to a supply of services, it was exempt from GST as a transfer of a going concern, and the unutilised ITC could be transferred to the Bengaluru unit. However, the Deputy Commissioner of Central Tax challenged this ruling before the Appellate Authority for Advance Ruling. The AAAR overturned the AAR’s decision, holding that the transaction amounted to a taxable supply of goods, the exemption for going concern was not available, and ITC could not be transferred since both units belonged to the same PAN and there was no “change in constitution” of the registered person. Aggrieved by this reversal, Shilpa Medicare approached the High Court. The High Court undertook an extensive analysis of the concept of “supply” under Section 7 of the CGST Act. Relying on earlier constitutional and VAT-era precedents, including Coromandal Fertilisers Ltd. and Paradise Food Court, the Court reiterated a settled principle that a business cannot be sold “in the course of business”; therefore, the sale or transfer of an entire undertaking as a going concern is not a taxable event. One of the most consequential aspects of the judgment relates to Section 18(3) of the CGST Act, which permits transfer of unutilised ITC in cases of sale, merger, demerger, amalgamation, lease, or transfer of business. The AAAR had taken a narrow view, holding that there was no “change in constitution” of the registered person, and ITC could not move across States under different State GST laws. Rejecting this approach, the High Court held that the phrase “change in constitution of the registered person” cannot be interpreted rigidly or mechanically. The Court pointed out that in a sale or merger, the constitution of the transferor does not necessarily change internally, yet Section 18(3) expressly allows ITC transfer. Input tax credit is an asset of the business and logically travels with the business when transferred as a going concern. The Court further emphasised that under Sections 25(4) and 25(5) of the GST Act, establishments in different States are treated as “distinct persons”. Having invoked this legal fiction to tax inter-unit transactions, tax authorities cannot deny ITC transfer by arguing that both units belong to the same entity. On the issue of transferring ITC accumulated under the Andhra Pradesh GST Act to Karnataka, the Court adopted a cautious approach. While it found no difficulty in principle for Central GST and IGST credits, it noted that State GST credits affect revenue settlement between States. Since the State of Karnataka was not a party to the proceedings, the Court refrained from issuing a final ruling on this aspect and left it open for the company to approach the concerned State authorities for appropriate relief. The High Court set aside the AAAR’s order dated 10 November 2020 and directed that any further proceedings must be guided by the legal principles laid down in its judgment. Case Details Case Title: M/S Shilpa Medicare Limited Versus UOI Case No.: W.P.No.15955 of 2021 Date: 31-01-2026 Counsel For Petitioner: V. Raghuraman Counsel For Respondent: P.S.P. Suresh Kumar Click Here To Read Order Read More: GST Orders Served via Portal Are Valid Despite Registration Cancellation: AP High Court

Transfer of Business as a Going Concern Is Not Taxable ‘Supply’ Under GST: AP HC

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