Andhra Pradesh HC Ruling On Transfer Of Business As Going Concern

Shilpa Medicare limited Vs Union of India [WP No 15955 of 2021, dated January 31, 2026]

High Court holds that the transfer of business as a going concern is not a taxable supply under GST, recognises such transfer of business between two distinct GST registrations of the same legal entity, and permits transfer of unutilised input tax credit

BRIEF FACTS OF THE CASE

• The petitioner, a pharmaceutical company engaged in research and development (R&D), had two GST-registered units, one in Vizianagaram, Andhra Pradesh and another in Bengaluru, Karnataka both operating under the same
• Pursuant to a Business Transfer Agreement dated June 26, 2019, the petitioner transferred its Vizianagaram R&D Unit to the Bengaluru Unit as a going concern, along with all assets, liabilities, employees, books, records and ledgers, technical or other information primarily in connection to business. The business was transferred as a going concern for zero
• The petitioner sought an advance ruling on the following questions:
• 1. Whether the transaction constituted as supply of goods or
  2. Whether it was covered under exemption as services by way of transfer of a going concern, as a whole or an independent part thereof vide No. 2 of Notification No. 12/2017-Central Tax (Rate).
  3. Whether unutilized input tax credit (ITC) of the Vizianagaram Unit could be transferred to the Bengaluru Unit through Form GST ITC-02.
• The Authority for Advance Ruling (AAR), by order dated February 24, 2020, held that the transaction was a supply of services and was exempt under the Notification 12/2017 and further permitted transfer of the unutilized ITC.
• Aggrieved by the said Advance ruling, the Department preferred an appeal before the Appellate Authority for Advance Ruling (AAAR). The AAAR, by order dated November 10, 2020, set aside the findings of the AAR and held that the transaction constituted a taxable supply of goods under the Central Goods and Services Act, 2017 (CGST Act) and Andhra Pradesh Goods and Service Act, 2017 (APGST Act) and that the petitioner was not entitled to transfer the unutilized
• Aggrieved by the order passed by AAAR, the petitioner has filed the present writ petition before the Hon'ble Andhra Pradesh High

KEY OBSERVATIONS OF THE HON'BLE HIGH COURT

• The Court placed reliance on the earlier judgment of the Andhra Pradesh High Court in Coromandal Fertilizers Limited State of Andhra Pradesh [1999 (112) STC 1], rendered in the context of the erstwhile Andhra Pradesh General Sales Tax Act, 1957, as well as on the decision in Paradise Food Court v. State of Telangana [2018 (16) G.S.T.L. 361 (A.P.)], delivered under the erstwhile Telangana VAT Act, 2005. These decisions clearly establish that only sales effected in the course of or for the furtherance of business are exigible to tax, and not the sale of the business itself.
• In the present case, the Court observed that there was a transfer of the entire R&D Unit as a going concern, including its assets and Such a transaction constitutes a sale of the business itself and not a sale or supply of individual goods. Consequently, it cannot be treated as a taxable supply of goods under the GST law.
• The Court further referred to Sl. No. 2 of Notification No. 12/2017–Central Tax (Rate) dated June 28, 2017, which exempts 'services by way of transfer of a going concern, as a whole or an independent part thereof'. While expressing doubt as to whether such a transaction could at all fall within the ambit of 'taxable supply' particularly when the GST legislation does not expressly provide for taxation of transfer of business as a going concern or deem it to be a supply of services, the Court left the issue open in view of the fact that the petitioner was otherwise entitled to exemption under the said
• On the issue of transfer of ITC, the revenue contended that ITC could not be transferred on two grounds: first, that there was no change in the constitution of the petitioner; and second, that ITC accrued under the APGST Act could not be transferred to the GSTIN of the petitioner registered under the KGST
• The Court examined Section 18(3) of the CGST Act, which provides that where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease, or transfer of business, along with specific provisions for transfer of liabilities, the registered person shall be permitted to transfer the unutilised ITC lying in his electronic credit ledger to the transferee in such manner as may be
• Rejecting the narrow interpretation adopted by the revenue authorities, the Court held that the expression 'change in the constitution of a registered person' cannot be confined to internal structural changes such as conversion of a firm into a Such a restrictive interpretation would render several categories expressly mentioned in Section 18(3) otiose. The provision must be construed purposively, so as to enable transfer of ITC from the electronic credit ledger of the transferor to the transferee upon transfer of a business as a going concern.
• The Court also referred to Sections 25(4) and 25(5) of the CGST Act, which mandate separate registration and treat establishments in different States as distinct persons. It was held that the authorities could not deny the benefit of ITC transfer merely on the ground that both units belonged to the same legal entity, since they were separately registered and statutorily deemed to be distinct persons under the GST

AURTUS COMMENTS

• The Court's reasoning is consistent with the settled jurisprudence under the erstwhile sales tax and VAT regime, where it was well established that the sale of an entire business as a going concern does not constitute a taxable sale of goods, since the business itself ceases to exist in the hands of the Under those regimes, the taxable event was confined to transactions in individual goods carried out in the course of business and did not extend to the transfer of the business itself. By relying on this settled principle, the Court has reaffirmed the conceptual distinction between a sale by a business and the sale of the business.
• Traditionally, the transfer of a going concern has been understood as a transaction between two independent legal entities. This judgment, however, significantly expands that understanding by recognising that a transfer between different GST registrations of the same legal entity can also qualify, given that such registrations are statutorily treated as distinct persons under the GST In doing so, the Court has opened a potential avenue for the efficient transfer of accumulated and unutilised ITC lying in one GSTIN to another GSTIN, subject to the satisfaction of the conditions applicable to the transfer of business as a going concern, along with the transfer of liabilities. It is relevant to note that Rule 41A of the CGST Rules permits the transfer of credit upon obtaining separate registration for multiple places within a State, in the Asset ratio. One could therefore also take recourse to the said Rule where the transfer is within the same State, and a new registration is being obtained.
• A critical aspect of the ruling is the validation accorded to the inter-State transfer of CGST and IGST credit balances, premised on the fact that the administering authority for these taxes is the Central The GST law does not, however, contain any specific provision expressly permitting such a transfer. The Hon'ble High Court declined to express any view on the transfer of SGST credit, noting that such a determination would have implications for two States and would therefore require consideration by the respective State authorities.
• In M/s. Umicore Autocat India Ltd. v. Union of India [WP No. 463 of 2024], the Bombay High Court also adverted to the distinct position relating to SGST. The Court observed that since SGST is levied, collected and ultimately consumed by the State Government, permitting its utilization in another State (such as Maharashtra) could result in a corresponding financial loss to the originating State, namely Goa. In view of this concern, and upon instructions, learned counsel for the petitioner made a categorical statement giving up the claim for transfer of the unutilised SGST credit.
• Although this ruling presents an opportunity to transfer accumulated CGST and IGST credit balances from one State to another, any attempt to adopt this approach is likely to invite litigation in States where there is currently no jurisprudence on the subject.

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