Transfer of a distinct business division as a running concern can qualify as sale of business as a whole for VAT exemption.

A distinct and functionally independent business division transferred as a running concern may qualify as a sale of business as a whole under Explanation III to Section 2(41) of the Tamil Nadu Value Added Tax Act, 2006. The Court rejected the view that exemption is confined only to transfer of the dealer's entire enterprise, and held that continuation of other business activities does not by itself defeat the exemption where the transferred unit is a separate business unit. The windmill division transfer was therefore treated as exempt from turnover, and the corresponding assessment was interfered with in favour of the assessee.

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Issues: Whether the transfer of the windmill division constituted a sale of business as a whole within Explanation III to Section 2(41) of the Tamil Nadu Value Added Tax Act, 2006 so as to exclude the sale consideration from turnover and invalidate the corresponding tax and penalty.

Analysis: The impugned assessment proceeded on the footing that exemption under Section 2(41) was available only when the dealer sold its entire business, and that transfer of a single division could never qualify. The Court applied the earlier line of authority holding that a distinct and functionally independent line of business may itself amount to a business unit, and that transfer of such unit as a running concern is treated as sale of business as a whole. On that basis, the sale of the windmill division could not be denied exemption merely because other business activities of the dealer continued.

Conclusion: The transfer of the windmill division was to be treated as a sale of business as a whole for the purpose of Section 2(41) of the Tamil Nadu Value Added Tax Act, 2006, and the assessment to that extent was liable to be interfered with in favour of the assessee.

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