Andhra Pradesh HC Holds Transfer of Business as Going Concern Not Taxable under GST, Sets Aside AAAR Ruling [Read Order]

The Andhra Pradesh High Court has held that transfer of an entire business undertaking as a going concern does not amount to a taxable supply under the Goods and Services Tax law, setting aside the ruling of the Appellate Authority for Advance Ruling.

The petitioner, Shilpa Medicare Limited, challenged an order dated November 10, 2020, passed by the Appellate Authority for Advance Ruling, Andhra Pradesh. The order sought to reverse the ruling of the Authority for Advance Ruling and denied exemption as well as transfer of unutilised input tax credit.

The dispute arose from a Business Transfer Agreement dated June 26, 2019 under which the petitioner transferred its Research and Development unit located at Vizianagaram, Andhra Pradesh, to its Bengaluru unit as a going concern, without consideration. The Authority for Advance Ruling had held that the transaction amounted to supply of services covered under Entry 2 of Notification No. 12/2017-Central Tax (Rate) and was exempt from GST. It also permitted transfer of unutilised input tax credit.

However, the Appellate Authority for Advance Ruling later held that the transaction was a taxable supply of goods and input tax credit could not be transferred.

Before the High Court, the petitioner contended that sale of an entire business as a going concern is not a supply made in the course or furtherance of business and therefore, does not attract GST. It was also argued that even if treated as supply of services, the transaction would be exempt under Notification No. 12/2017. With respect to input tax credit, the petitioner submitted that Section 18(3) of the CGST Act permits transfer of unutilised credit.

The tax department opposed the petition, arguing that the transaction constituted taxable supply and no provision permitted transfer of input tax credit from Andhra Pradesh to Karnataka.

After examining the statutory provisions, the High Court observed that GST is leviable only on supplies made in the course or furtherance of business and not on sale of the business. The Court held that transfer of the R&D unit as a going concern amounted to transfer of the business itself and not supply of individual goods or services.

The Court further observed that Notification No. 12/2017 exempts transfer of a going concern and the Appellate Authority for Advance Ruling erred in treating the transaction as taxable.

On the issue of input tax credit, the Court held that Section 18(3) of the CGST Act enables transfer of unutilised input tax credit when a business is transferred and such credit constitutes an asset of the business. The Court clarified that the issue of transfer of State GST credit between Andhra Pradesh and Karnataka may require consideration by the respective State authorities.

As a result, the Division Bench comprising Justice R. Raghunandan Rao and Justice T.C.D. Sekhar, set aside the order of the Appellate Authority for Advance Ruling and disposed of the writ petition.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates