Transfer of business undertaking as a going concern excludes sale consideration from turnover under Tamil Nadu sales tax law.

Transfer of the Thoraipakkam and Ranipet units as running undertakings was treated as a transfer of business undertakings, not a sale of goods in piecemeal form. The agreement showed that all essential assets, liabilities, employees, contracts, licences, plant, machinery and intangibles connected with the units were transferred as going concerns, and separate valuation of immovable and movable assets did not change the substance of the transaction. On that basis, Explanation 3 to Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959 was held not to apply, so the sale consideration was not includible in turnover and the penalty could not survive.

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Issues: Whether the transfer of the Thoraipakkam and Ranipet units as running undertakings attracted Explanation 3 to Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959 so as to bring the sale consideration into turnover and sustain the levy of penalty.

Analysis: The agreement showed that the parties intended transfer of the two units as going concerns, with all essential assets, liabilities, employees, contracts, licences, plant, machinery, and intangibles connected with those units. The mere separate valuation of immovable and movable assets did not alter the substance of the transaction. A sale of a business unit as a whole stands on a different footing from a sale of stock-in-trade or piecemeal assets, and the cessation of business in those units supported the claim that the transaction was a transfer of business undertakings rather than a taxable sale of goods.

Conclusion: Explanation 3 to Section 2(r) was not attracted, the sale consideration was not includible in turnover, and the penalty could not survive.

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