Transfer of Business as a Going Concern Is Not Taxable Supply –
Andhra Pradesh High Court in Shilpa Medicare Limited v. Union of India
M/s Shilpa Medicare
Limited v. Union of India & Others
Court: High
Court of Andhra Pradesh at Amaravati
Writ Petition No.: W.P.
No. 15955 of 2021
Date of Judgment: 31
January 2026
Brief
Overview of the Case
In a significant ruling
under the GST regime, the Andhra Pradesh High Court has held that transfer
of an entire business undertaking as a going concern does not constitute a
taxable supply, and further clarified that Input Tax Credit (ITC) can be
transferred under Section 18(3) of the CGST Act even where the transfer is
between two units of the same legal entity registered in different States.
The judgment sets aside
the order passed by the Appellate Authority for Advance Ruling (AAAR)
which had erroneously treated the transaction as a taxable supply of goods
and denied the benefit of ITC transfer.
Facts of
the Case
M/s Shilpa Medicare
Limited is a pharmaceutical company engaged in research and development
(R&D), manufacturing of active pharmaceutical ingredients, and
formulation products. The company operated:
- One R&D unit at Vizianagaram,
Andhra Pradesh, and
- Another R&D unit at Bengaluru,
Karnataka
Both units were separately
registered under GST in their respective States, though they shared the same
PAN.
In June 2019, the company
decided to shift its Vizianagaram R&D unit to Bengaluru.
Accordingly, a Business Transfer Agreement (BTA) dated 26.06.2019 was
executed, whereby:
- The entire R&D undertaking
of the Vizianagaram unit
- Including assets, liabilities,
employees, books, records, and intangibles
- Was transferred as a going concern
- Without any monetary consideration
Questions
Raised Before the Authority for Advance Ruling (AAR)
Shilpa Medicare
approached the AAR seeking clarification on the following issues:
1. Whether
the transaction amounts to supply of goods, supply of services, or both?
2. Whether
the transaction is covered under Entry No. 2 of Notification No. 12/2017–CT
(Rate) (exemption for transfer of going concern)?
3. Whether
unutilized ITC of the Vizianagaram unit can be transferred to the
Bengaluru unit through FORM GST ITC-02?
Findings of
the Authority for Advance Ruling (AAR)
The AAR held that:
- The transaction amounted to supply
of services
- The supply was exempt under
Notification No. 12/2017
- Transfer of unutilized ITC was
permissible
Reversal by
the Appellate Authority for Advance Ruling (AAAR)
The Deputy Commissioner
of Central Tax challenged the AAR ruling before the AAAR.
The AAAR reversed the
AAR decision and held that:
- The transaction was a taxable
supply of goods
- ITC transfer was not permissible
- Section 18(3) was not applicable,
as there was no “change in constitution”
- Transfer of ITC from Andhra Pradesh
to Karnataka would affect State revenue
This adverse ruling led
Shilpa Medicare to approach the High Court under Article 226.
Key Issues
Before the High Court
1. Whether
transfer of an entire business undertaking as a going concern
constitutes a “supply” under GST?
2. Whether
such a transaction is taxable, even when made without consideration?
3. Whether
Section 18(3) of the CGST Act allows transfer of ITC in such cases?
4. Whether
ITC can be transferred between distinct persons registered in different
States?
5. Whether
AAAR was justified in denying ITC transfer on federal revenue grounds?
Court’s
Analysis and Findings
1. Transfer of Business
as a Going Concern Is Not a Taxable Supply
The Court examined Section
7 of the CGST Act, which defines “supply” as transactions made in the
course or furtherance of business.
Relying heavily on
pre-GST jurisprudence, including:
- Coromandal Fertilizers Ltd. v. State
of A.P.
- Paradise Food Court v. State of
Telangana
the Court reiterated a
settled principle:
A business cannot be sold
“in the course of business” because, after such sale, no business survives.
The Court held that:
- Transfer of an entire business
undertaking is sale of business itself, not sale of goods or
services
- Such a transaction falls outside
the charging provisions of GST
- Individual assets transferred as part
of a composite business transfer cannot be artificially taxed
2. Applicability of Notification No. 12/2017 – Exemption for Going
Concern
Entry No. 2 of
Notification No. 12/2017 exempts:
“Services by way of
transfer of a going concern, as a whole or an independent part thereof”
The Court observed that
even assuming the transaction is treated as a supply of service, it is squarely
covered by the exemption notification.
Importantly, the Court
noted that there is doubt whether such transfers can be taxed at all,
but left the question open since exemption already applied.
3. Broad Interpretation of Section 18(3) – ITC Transfer Allowed
One of the most
significant aspects of this judgment is the interpretation of Section 18(3).
The AAAR had taken a
narrow view that “change in constitution” means only changes like:
- Proprietorship to partnership
- Partnership to company
The High Court categorically
rejected this interpretation, holding that:
- Section 18(3) expressly includes sale,
merger, demerger, amalgamation, lease, or transfer of business
- In a sale of business, there
is no internal constitutional change, yet ITC transfer is permitted
- Therefore, “change in constitution”
must be understood contextually, not technically
The Court emphasized
that:
ITC is an asset of the
business and must logically travel with the business undertaking when it is
transferred.
4. Distinct
Persons Under GST – Revenue Cannot Take Contradictory Stands
The Court relied on Sections
25(4) and 25(5) of the CGST Act, which deem separately registered units as distinct
persons.
The Court held:
- When the department treats two units
as distinct persons for taxation
- It cannot deny ITC transfer by
claiming they are the same person
- Authorities cannot approbate and
reprobate
5.
Inter-State ITC Transfer (APGST to KGST)
On the issue of ITC
transfer between State GST Acts:
- The Court allowed transfer under CGST
and IGST
- For APGST to KGST transfer,
the Court left the issue open
- Directed the petitioner to approach State
authorities of both States
This balanced approach
respected federal considerations while protecting taxpayer rights.
Final
Decision of the High Court
- AAAR order dated 10.11.2020 was set
aside
- Transfer of business as a going
concern held non-taxable
- ITC transfer under Section 18(3) recognized
in principle
- Matter remitted for further action
consistent with Court’s findings
- No order as to costs
Conclusion
The judgment in Shilpa
Medicare Limited is a landmark ruling under GST, bringing
much-needed clarity on business transfers, exemption for going concerns, and
ITC portability. It reinforces continuity of tax jurisprudence from the VAT
era into GST and acts as a strong safeguard against hyper-technical and
revenue-oriented interpretations.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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