Is Transfer of a Going Concern Business Taxable Under GST? Understanding ITC Transfer Through the M/s Shilpa Medicare Limited Case in High Court of Andhra Pradesh’s Ruling.

Case Summary – Shilpa Medicare Ltd. v. Union of India & Others

W.P. No. 15955 of 2021
High Court of Andhra Pradesh (Amaravati)
Judgment Date: 31-01-2026
Judges: Justice R. Raghunandan Rao & Justice T.C.D. Sekhar

I. Facts of the Case

1. About the Petitioner

Shilpa Medicare Limited, a pharmaceutical company engaged in Research and Development (R&D) and manufacturing, had:

• One R&D unit in Vizianagaram, Andhra Pradesh

• One R&D unit in Bangalore, Karnataka

Both units:

• Had the same PAN (Permanent Account Number)

• Had separate GST registrations

• Were treated as distinct persons under GST law

2. Business Transfer

In June 2019, the company executed a Business Transfer Agreement (BTA) to transfer its Vizianagaram R&D unit to its Bangalore unit.

The transfer:

• Was done as a going concern

• Included assets, liabilities, employees, and records

• Was made for zero consideration

• Involved transfer of entire business undertaking

3. Application for Advance Ruling

The company approached the Authority for Advance Ruling (AAR) under the CGST Act, 2017, asking:

1. Whether the transaction is a supply of goods or supply of services

2. Whether it is covered under Notification No. 12/2017-CT (Rate)

3. Whether Input Tax Credit (ITC) transfer is allowed under Section 18(3) of CGST Act

4. AAR Decision

The Advance Ruling Authority (AAR) held:

• Transfer of business as going concern is a supply of services

• It is covered under GST exemption for transfer of going concern

• ITC transfer is permissible

5. Appellate Authority Decision

The Appellate Authority for Advance Ruling (AAAR) reversed the decision and held:

• The transaction is a taxable supply of goods

• It attracts GST liability

• ITC transfer not allowed

The company challenged this before the High Court of Andhra Pradesh under Article 226.

II. Legal Issues Before the High Court

1. Whether transfer of entire business as a going concern under GST is taxable?

2. Whether such transfer amounts to supply under Section 7 of CGST Act?

3. Whether ITC transfer under Section 18(3) is permissible?

4. Whether separate GST registrations create distinct persons under Section 25(4) & 25(5)?

III. Petitioner’s Key Arguments

A. Transfer of Going Concern is Not Taxable Supply

• GST applies to supply made in the course or furtherance of business

• Sale of entire business is not a transaction in the course of business

• Therefore, not taxable under Section 7 CGST Act

B. No Consideration

• Transaction was for zero consideration

• Not covered under Schedule I of CGST Act

• Therefore, not a taxable supply

C. Exemption Under Notification 12/2017

• Transfer of going concern is specifically exempt

• Falls under Sl. No. 2 of Notification 12/2017-CT (Rate)

D. ITC Transfer is Allowed

• Section 18(3) CGST Act allows transfer of unutilized ITC

• Separate GST registrations = distinct persons

• Therefore, ITC can be transferred

IV. Department’s Arguments

1. No change in constitution of registered person

2. Same company → no transfer to another person

3. APGST credit cannot be transferred to KGST

4. Section 18(3) not applicable

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V. High Court’s Analysis

1. Taxability of Transfer of Business

The Court relied on earlier precedents:

· Coromandel Fertilizers Ltd. v. State of AP

· Paradise Food Court v. State of Telangana

Held:

· Sale of entire business is not sale in the course of business

· GST only taxes supply in course of business

· Therefore, transfer of going concern is not taxable supply of goods

2. Supply of Services Issue

· Notification 12/2017 treats transfer of going concern as supply of services

· Even if treated as service, it is GST exempt supply

3. Interpretation of Section 18(3) – ITC Transfer

The Court held:

· “Change in constitution” must be interpreted broadly

· ITC is an asset of the business

· On transfer of business, ITC must also transfer

· Narrow interpretation defeats purpose of GST credit mechanism

4. Distinct Persons Under GST

Under Section 25(4) & 25(5) CGST Act:

· Separate registrations in different states = distinct taxable persons

Court held:

· Department cannot treat them as distinct persons for taxation

· And then deny ITC transfer claiming they are same entity

5. Interstate SGST Credit Transfer

The Court made an important distinction:

• Transfer of CGST and IGST credit → No problem.

• Transfer of APGST credit to Karnataka → Involves two different states.

Since Karnataka was not a party in the case:

• The Court did not give final ruling on this.

• Company can approach state authorities. Court distinguished between:

VI. Final Judgment

• AAAR order dated 10.11.2020 set aside

• Writ Petition allowed

• Matter to be reconsidered as per High Court observations

• No costs

VII. Why This Judgment Is Important

This case is significant for:

• Corporate restructuring under GST

• Mergers and business transfers

• ITC portability across states

• Clarifying tax treatment of sale of business as going concern

Frequently Asked Questions (FAQs)

1. What was this case about?

This case was about whether transferring an entire business unit (as a going concern) from one state to another attracts GST, and whether the company can transfer its unused Input Tax Credit (ITC) along with the business.

2. What does “transfer of going concern” mean?

It means transferring the whole business unit — including assets, liabilities, employees, and operations — in such a way that the business continues without stopping.

In simple words, the business keeps running, just under a different registered unit.

3. Is transfer of a going concern taxable under GST?

The High Court said that selling the entire business as a going concern is not a normal business sale. GST applies to supplies made in the course of business, but selling the whole business itself is not considered a regular business transaction.

Even if it is treated as a service, it is exempt under GST Notification 12/2017.

4. Can a company transfer its unused ITC when it transfers a business?

Yes. The Court said that under Section 18(3) of the CGST Act, unused Input Tax Credit can be transferred when a business is sold, merged, or otherwise transferred.

Since ITC is like a tax asset of the business, it should move along with the business.

5. Why did the tax department deny the ITC transfer?

The department argued that:

• There was no change in the constitution of the company.

• Both units belonged to the same company (same PAN).

• Therefore, ITC transfer was not allowed.

6. What did the High Court say about this?

The Court disagreed with the department. It said:

• “Change in constitution” should not be interpreted narrowly.

• If GST law treats registrations in different states as separate persons, then the department cannot deny ITC transfer by saying they are the same entity.

• The law must be interpreted in a practical and fair way.

7. Are branches in different states considered separate persons under GST?

Yes. Under GST law, if a company has separate registrations in different states, they are treated as “distinct persons” for tax purposes — even though they belong to the same company.

8. Can State GST credit (like APGST) be transferred to another state (like Karnataka)?

The Court said CGST and IGST credits do not create issues.

However, transferring State GST credit from one state to another may require coordination between the state authorities. The Court left that issue open for further decision by the concerned authorities.

9. What was the final decision of the High Court?

The High Court:

• Cancelled (set aside) the order of the Appellate Authority.

• Held that the earlier ruling denying ITC was incorrect.

• Allowed reconsideration of the matter in line with its observations.

10. Why is this case important?

This case is important for companies that:

• Restructure their business

• Merge or transfer business units

• Shift operations from one state to another

• Want clarity on ITC transfer rules

It gives useful guidance on how GST law applies to business transfers.

11. What should businesses learn from this case?

Businesses planning to transfer a unit should:

• Clearly structure it as a transfer of a going concern

• Maintain proper documentation

• Ensure compliance with ITC transfer procedures

• Seek professional advice before executing inter-state transfers

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