TaxTMI 
TaxTMI 
2026 (2) TMI 169
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....he respondents. 2. The petitioner herein is a limited company which undertakes Research and Development in Pharmaceuticals including active pharmaceutical ingredients, formulation of molecules and manufacture of formulation products. The petitioner had one Research and Development Center situated in Karnataka State and another in Modavalasa Village, Denkada Mandal, Vizianagaram District of Andhra Pradesh. The unit in Vizianagaram was registered under the GST Act with Registration No.37AADCS8788F1ZR. Similarly, the Bangalore Unit of the petitioner was also registered, in the State of Karnataka, with GST No. 29AADCS8788F1ZO. The petitioner had been allotted a Permanent Account Number, under the Income Tax Act, bearing PAN No. AADCS8788F. The petitioner decided to transfer its R&D Center in Vizianagaram to Bangalore. For this purpose, the Vizianagaram Unit as well as the Bangalore Unit entered into a Business Transfer Agreement, dated 26.06.2019. Under this agreement, the business assets and business liability of the Vizianagaram Unit, as a going concern, was transferred to the Bangalore Unit for Zero consideration. The R&D business undertaking, which was the subject matter of the ....
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.... ruling was correct. The appellate authority for advance ruling, by its order, dated 10.11.2020, in order/AAAR/AP/07(GST)/2020, set-aside the findings of the Authority for Advance Ruling and held that the transaction under question was a supply of goods which was taxable as per the prevailing provisions of the CGST/APGST Act, 2017 and that the petitioner was not entitled to transfer the input tax credit available with the Vizianagaram Unit to the Bangalore Unit in the State of Karnataka. 6. Aggrieved by this order of the Appellate Authority for Advance Ruling, the petitioner has approached this Court, by way of the present Writ Petition. 7. Heard Sri V. Raghuraman, the learned Senior Counsel appearing on behalf of Sri Anil Kumar Bezawada, learned counsel for the petitioner and Sri P.S.P. Suresh Kumar, the learned Standing Counsel appearing for the respondents. 8. The case of the writ petition is that- A) The transfer of goods in the course of the sale or transfer of the entire business undertaking, as a going concern, is not taxable at all. This contention is raised on the ground that the definition of 'business' in section 7(1) of the CGST Act would exclu....
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....y for advance ruling. It is the case of the 7th respondent, as contended by Sri P.S.P. Suresh Kumar, that the findings of the appellate authority for advance ruling does not require any reconsideration for the following reasons: i) The question of transfer of input tax credit would arise only where there is a transfer for consideration. In the present case, the transfer agreement itself states that there is no consideration paid for this transfer. Consequently, the question of transfer of input tax credit does not arise. ii) Even if there is a transfer of business, the input tax credit available to the petitioner, in the State of Andhra Pradesh, cannot be transferred to the State of Karnataka. Such transaction is not provided under any of the provisions of the GST Acts and any such transfer would be in violation of the law, inasmuch as the input tax credit, which was credited to the petitioner arose in the State of Andhra Pradesh under the APGST act and there is no provision for transfer of such input tax credit, to the State of Karnataka which is governed by the Karnataka Goods and Services Tax Act. Transfer of Assets during transfer of business is included in th....
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.... made "in the course or furtherance of business". Section 7(1)(c) stipulates that activities in Schedule-I, even if made without consideration would fall within the ambit of "supply". Entry No. 2 in Schedule-I reads as follows: 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business: Even here, the relevant factor is whether such supply is made in the course or furtherance of business. 12. The question of whether sale of goods, in the course of transfer of the business itself, as a going concern, under the provisions of the APGST Act as well as the A.P. VAT Act came to be considered by the erstwhile High Court of Andhra Pradesh as well as the erstwhile High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in Coromandal Fertilizers Limited vs. State of Andhra Pradesh 1999 (112) STC 1, and Paradise Food Court vs. State of Telangana. In Coromandal Fertilizers Limited vs. State of Andhra Pradesh, a Division Bench, of the erstwhile High Court of Andhra Pradesh, had referred the following issue to a Full Bench: ....
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....to make gain of profit and whether or not any gain or profit accrues there from; and (ii) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern." 15. A similar issue came up before the erstwhile High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in Paradise Food Court vs. State of Telangana. This case came up under the Telangana State VAT Act. The Division Bench after noticing the definition of sale of goods etc., in the Telangana State VAT Act, 2005 had held as follows: 22. As we have stated earlier, the Act seeks to define the word "business" under Section 2(6), for the simple reason that in a few specific places such as Section 2(28), Section 4(4) and Section 13(1), the Act uses the expressions "in the course of business" and "for use in the business". Therefore, it must be made clear at the outset that what is sought to be charged under the Act is only the sale of the goods or transfer of right to use the goods in the course of business and not the sale of business itself as a whole. 29. But the above contention loses sight of one impo....
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....tion 2(28) and Rule 36. It is not the case of the respondent that the petitioner had claimed Input Tax Credit under Section 13(5)(b) so as to treat the case as not one of transfer of business as a whole. 16. The ratio, set down in these judgments, would apply to the provisions of the GST Acts, as the language in these provisions is similar to the language of the provisions, in the Sales Tax Act and the Value Added tax Act. The aforesaid judgments make it clear that it is only sales which are in the course of or for the furtherance of business, and not sale of the business itself, which can be taxed under the provisions of the GST Acts. In the present case, there was a transfer of the entire R&D Unit, as a going concern, including the assets and liabilities. Such a transaction would be the sale of a business itself and not sale/supply of individual goods. 17. Notification No. 12/2017 treats the transfer of a going concern as a whole or an independent part, thereof as supply of services and exempts the same from payment of tax. There is a doubt as to whether such services could have been brought within the purview of the GST regime, once the GST Act itself does not provide for ....
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....usiness goes out of the picture and it is only the transferee of the business that would be given the benefit of transfer of input tax credit. In such cases also, there would be no change in the constitution of the registered person. 20. In the circumstances, full meaning and benefit cannot be given to the phrase "change in the constitution of the registered person" if it is understood to mean that there has to be an internal change, in the registered person, on account of certain forms of transfer/supply or that the business itself moves from one registered person to another person. Any such interpretation would cut out same of the forms of transfer such as sale, merger, lease of business etc. To that extent, it would have to be held that change in constitution cannot be taken to be change in the constitution of the transfer or and that the benefit of transfer of input tax credit would not be available to a transferee which is a separate entity. This phrase would have to be understood to mean that there can be transfer of input tax credit from the ledger of the transferor to the transferee. 21. Apart from the above, the input tax credit available, in the ledger of the transf....