TaxTMI 
TaxTMI 
TaxTMI 
The GST implications on the sale or transfer of a business depend fundamentally on the manner in which such transfer is structured. Under the GST framework, a business may be transferred either as a going concern or through an itemized transfer of individual assets and liabilities, with materially different tax consequences in each case. While the transfer of a business as a going concern is recognized as a distinct category of supply and is eligible for exemption subject to prescribed conditions, an asset-wise transfer attracts GST depending upon the nature of the goods or services involved.
Transfer of Business as a Going Concern
In terms of paragraph 4(c) of Schedule II to the Central Goods and Services Tax (CGST) Act, 2017, read with Notification No. 12/2017–Central Tax (Rate) dated 28th June 2017 (as amended), services by way of transfer of a going concern, either as a whole or as an independent part thereof, are exempt from GST.
Although the term “going concern” is not defined under the GST law, it is well recognized in accounting and commercial jurisprudence. Accounting Standard (AS)–1, issued by the Institute of Chartered Accountants of India (ICAI), explains the going concern assumption to mean that an enterprise is expected to continue its operations for the foreseeable future, without any intention or necessity of liquidation or material curtailment of its activities.
Further, Paragraph 4 of Schedule II provides that where a person ceases to be a taxable person, any goods forming part of the business assets shall be deemed to be supplied immediately before such cessation, unless the business is transferred as a going concern to another person or is carried on by a personal representative deemed to be a taxable person.
illustration: Where a company discontinues one of its business divisions and cancels its GST registration for that division while retaining the underlying assets such as machinery, inventory or office equipment, the transfer of such assets would be treated as a deemed supply under Paragraph 4 of Schedule II and GST would be payable on their value. However, where the same division is transferred in its entirety to another company as a going concern, together with employees, contracts and liabilities, pursuant to a scheme of demerger or slump sale, the deeming provision would not apply, and no GST would be payable on the transfer of such business assets.
illustration: Where a partnership firm dissolves and the partners distribute the closing stock and capital assets among themselves without transferring the business as a going concern, such distribution would be treated as a deemed supply and GST would be payable on the value of the assets so distributed. However, if the partnership firm is converted into a company and the entire business is transferred to the company as a going concern, with continuity of operations and transfer of liabilities, the deeming provision would not apply, and no GST would be leviable on the transfer of business assets.
Transfer of ITC on Sale / Merger / Demerger
Section 18(3) of the CGST Act, 2017 specifically 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, and such change is accompanied by specific provisions for transfer of liabilities, the registered person is permitted to transfer the unutilized input tax credit (ITC) lying in its electronic credit ledger to the transferee. The manner and conditions for such transfer are prescribed under Rule 41 of CGST Rules 2017 as further clarified by Circular No. 133/03/2020-GST dated 23 March 2020 .
Illustration:
In case the transferor Entity transfers only its plant and machinery and Unutilized ITC to Transferee Entity without transferring its liabilities. Since the transaction does not involve transfer of liabilities, the conditions of Section 18(3) of the CGST Act read with Rule 41 are not satisfied. Accordingly, the transferor entity is not permitted to transfer the unutilized ITC to transferee entity.
Under Rule 41, the transferor is required to file FORM GST ITC-02 on the common portal, furnishing details of the transaction and seeking transfer of unutilized ITC. In the case of a demerger, the ITC is required to be apportioned in the ratio of the value of assets of the resulting units as specified in the approved demerger scheme. The term “value of assets”[1] is has been clarified to mean the value of the entire assets of the business, irrespective of whether ITC has been availed thereon.
As per Section 232(6) of the Companies Act 2013, a scheme of demerger is deemed to be effective from the appointed date specified therein. Accordingly, for the purpose of apportionment of ITC under Rule 41, the ratio of asset values should be determined as on the appointed date of demerger.
Additionally, the transferor is required to furnish a certificate from a practicing Chartered Accountant or Cost Accountant certifying that the transaction provides for transfer of liabilities. Upon acceptance of FORM GST ITC-02 by the transferee on the common portal, the specified ITC stands credited to the transferee’s electronic credit ledger.
Judicial Developments
Recently in the case of Alstom Transport [2] the Gujarat High Court examined whether an amalgamating company could claim refund of unutilized ITC after merger. The Court held that upon the merger of Alstom Rail Transportation India Pvt. Ltd. into Alstom Transport India Ltd., pursuant to an NCLT order dated 10 August 2023 effective from 22 September 2023, the transferor entity ceased to exist in law and its GST registration ought to have been cancelled from the effective date. Consequently, unutilized ITC could only be transferred to the transferee in accordance with Section 18(3) read with Rule 41 and could not be partly retained for claiming refund under Section 54(3), as refund is a statutory concession requiring strict compliance. The refund granted to the transferor was therefore held to be legally unsustainable.
Further, in another case of Umicore Autocat [3] Hon’ble High Court of Bombay (GOA Bench) held that the transferee company is entitled to utilise the unutilised ITC lying in the electronic credit ledger of the transferor company, irrespective of territorial boundaries, since upon amalgamation the transferor had ceased to function and all its assets and liabilities, including ITC, stood vested in the transferee. The Hon’ble Court further directed the GST Council and the Goods and Services Tax Network (GSTN) to evolve an appropriate mechanism to address situations involving inter-State transfer of ITC by upgrading the GSTN system.
Similarly in FLY TXT Mobile [4] (AAR -Kerala) it was held that upon merger, the closing balance of CGST and IGST lying in the electronic credit ledger of the transferor can be transferred to the resulting company even where the GST registrations are not within the same State.
Proceedings Against Non-Existent Entities
Upon amalgamation, the transferor entity ceases to exist in the eyes of law and any proceedings initiated or continued against such a non-existent entity are legally untenable.
In the case of HCL Infosystems [5],Hon’ble Delhi High Court held that once a company is dissolved pursuant to amalgamation, any proceedings initiated or continued against such a company are void ab initio. The Hon’ble Court further held that that Section 87 of the CGST Act merely deals with apportionment of liabilities and does not authorize continuation of proceedings against a non-existent entity. Similar views have been expressed by the Karnataka High Court in the case of Trelleborg India [6].
[1]Notification No. 16/2019-Central Tax dated 29.03.2019 w.e.f. 29.03.2019
[2]M/s. Alstom Transport India Limited Through Its Authorised Signatory Shah Diptej Harshadkumar Versus Additional Commissioner, CGST And Central Excise (Appeals) & Ors. - 2026 (1) TMI 1337 - GUJARAT HIGH COURT
[3]Umicore Autocat India Private Limited, (after amalgamation of M/s Umicore Anandeya India Private Limited) Versus Union of India, Goods and Services Tax Network, New Delhi, Central Board of Indirect Taxes and Customs, The Goods and Services Tax Council (GST Council), New Delhi, The State Tax Officer, Panaji, Goa, The Commissioner, CGST, Patto. - 2025 (7) TMI 1188 - BOMBAY HIGH COURT
[4]In Re: M/s. Flytxt Mobile Solutions Private Limited - 2025 (9) TMI 1054 - AUTHORITY FOR ADVANCE RULING, KERALA
[5] HCL Infosystems Ltd. Versus Commissioner of State Tax & Anr. - 2024 (11) TMI 1331 - DELHI HIGH COURT
[6]M/s. Trelleborg India Private Limited Versus State of Karnataka, Commissioner Of Commercial Taxes Bengaluru, Union Of India, State Of Karnataka, Assistant Commissioner Commercial Taxes Enforcement 22, Bengaluru, Commissioner of CGST and Central Excise Bengaluru-2024 (7) TMI 1108 - KARNATAKA HIGH COURT