Transfer of business as a going concern and transfer of input tax credit: exemption preserved; AAR ruling set aside.

Notification No. 12/2017 treats transfer of a going concern (whole or independent part) as an exempt supply, though the court left open whether the GST Act itself classifies such transfers as supplies. Section 18(3) permits transfer of input tax credit on sale, merger, amalgamation or lease so that the transferee may receive the transferor's ITC balance; the phrase "change in the constitution of the registered person" must be read to allow ledger transfer of credit to a separate transferee. Interstate GST ledger transfers between state Acts require administrative determination. The AAR ruling was set aside and the matter remitted for authority consideration.

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Issues: (i) Whether the transfer of the petitioner's entire R&D unit as a going concern amounts to a taxable supply of goods or services under the GST law or is not chargeable as a sale of goods; (ii) Whether the unutilised input tax credit (ITC) in the transferor unit in Andhra Pradesh can be transferred to the transferee unit in Karnataka under Section 18(3) of the CGST Act and related provisions.

Issue (i): Whether the transfer of the entire R&D unit as a going concern is a taxable supply of goods or services under the CGST/APGST Acts.

Analysis: The Court compared the GST definitions of "supply" in Section 7 and Schedule I with precedents under the Sales Tax and VAT regimes (including Coromandel Fertilizers and Paradise Food Court), which held that sale of an entire business as a going concern is not a sale "in the course of business" and thus not taxable as sale of individual goods. The Court observed that Notification No.12/2017 treats transfer of a going concern as supply of services and exempts it, and left open the larger question whether such transfers could be characterised as services under the GST charging provisions while applying the notification for relief.

Conclusion: The transfer of the entire R&D unit as a going concern is not to be treated as a taxable supply of individual goods under the GST charging provisions; the petitioner is entitled to the benefit of exemption by Notification No.12/2017.

Issue (ii): Whether unutilised input tax credit in the transferor's Andhra Pradesh ledger can be transferred to the transferee in Karnataka under Section 18(3) of the CGST Act.

Analysis: The Court construed Section 18(3) to allow transfer of unutilised ITC on transfer/ sale/ merger/ amalgamation etc., and rejected a narrow interpretation that "change in constitution" requires only internal restructuring of the same registered person. The Court held that where registrations in different States render units "distinct persons" under Section 25, the authorities cannot treat intra-entity transfers as non-transfers; however, interstate transfer of ITC between State GST ledgers (APGST to KGST) raises allocation issues affecting States and requires determination by the relevant State/Central authorities under their statutes and rules.

Conclusion: Section 18(3) permits transfer of unutilised ITC on transfer of a business; the appellate authority's conclusion denying such transfer is set aside. Questions about admissibility of credit transfer between APGST and KGST ledgers are to be decided by the competent authorities under those Acts and not finally determined by this Court.

Final Conclusion: The order of the Appellate Authority for Advance Ruling dated 10.11.2020 is set aside; the petitioner is entitled to the benefit of Notification No.12/2017 in respect of the going-concern transfer and Section 18(3) must be read to permit transfer of unutilised ITC on transfer of business, while interstate ledger adjustments are to be considered by the appropriate tax authorities.

Ratio Decidendi: A transfer of an entire business as a going concern is not chargeable as a sale of goods under the GST charging provisions and, where a business is transferred, Section 18(3) of the CGST Act provides for transfer of unutilised input tax credit to the transferee; interstate ledger allocation issues require administrative determination by the competent authorities.

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