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W.P.No.15955 of 2021

IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI

***

W.P.No.15955 of 2021

Between:

1. M/S SHILPA MEDICARE LIMITED, SURVEY NO. 207, MODAVALASA

VILLAGE, DENKADA MANDAL, VIZIANAGARAM -531162. ANDHRA

PRADESH.

2. HAVING THEIR CORPORATE AND ADMIN OFFICE, AT. M/S. SHILPA

MEDICARE LIMITED, SHILPA HOUSE 12 -6-214/A-1, HYDERABAD

ROAD, RAICHUR-584 135, KARNATAKA.

3. REPRESENTED BY ITS FINANCE MANAGER, SHRI. RAMAKANT

INNANI, S/O.NATHMAL INNANI AGED 43 YEARS, R/O. H. NO. 7-5-

204, JAWAHAR NAGAR, RAICHUR - 584 101 KARNATAKA.

...PETITIONER(S)

AND

$1. UNION OF INDIA, REPRESENTED BY ITS SECRETARY MINISTRY

OF FINANCE (DEPARTMENT OF REVENUE) NO.137, NORTH

BLOCK, NEW DELHI-110001.

2. UNION OF INDIA, REPRESENTED BY ITS SECRETARY MINISTRY

OF LAW AND JUSTICE, 4TH FLOOR, A, WING, RAJENDRA

PRASAD ROAD, SHASTRI BHAVAN, NEW DELHI -110 001.

3. THE GOODS AND SERVICES TAX COUNCIL, REPRESENTED BY

ITS SECRETARY OFFICE OF THE GST COUNCIL SECRETARIAT,

5TH FLOOR, TOWER II, JEEVAN BHARTI BUILDING, JANPATH

ROAD, CONNAUGHT PLACE, NEW DELHI-110 001.

4. THE STATE OF ANDHRA PRADESH, REPRESENTED BY ITS

CHIEF SECRETARY, BUILDING 1, 1ST FLOOR, INTERIM

GOVERNMENT COMPLEX,A.P. SECRETARIAT, VELAGAPUDI,

GUNTUR- 522 503, ANDHRA PRADESH.

5. THE APPELLATE AUTHORITY FOR ADVANCE RULIN G, FOR THE

STATE OF ANDHRA PRADESH (GOODS AND SERVICE TAX),

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OFFICE OF THE CHIEF COMMISSIONER OF STATE TAX,

GOVERNMENT OF ANDHRA PRADESH, BUNDER ROAD,

EDUPUGALLU, VIJAYAWADA - 521 151, ANDHRA PRADESH.

6. THE AUTHORITY FOR ADVANCE RULING, ANDHRA PRAD ESH,

(GOODS AND SERVICE TAX), D. NO. 5-56, BLOCK-B, R.K. SPRING

VALLEY APARTMENTS, EDUPUGALLU, VIJAYAWADA - 521 151,

ANDHRA PRADESH.

7. THE DEPUTY COMMISSIONER OF CENTRAL TAX,

VIZAINAGARAMCENTRAL GST DIVISION, NEAR

DANDUMARAMMA TAMPLE, CONTONMENT AR EA,

VIZAINAGARAM - 535 003 ANDHRA PRADESH.

...RESPONDENT(S):

Date of Judgment pronounced on : 31-01-2026

HON’BLE SRI JUSTICE R. RAGHUNANDAN RAO

HON’BLE SRI JUSTICE T.C.D SEKHAR

1. Whether Reporters of Local newspapers : Yes/No

May be allowed to see the judgments?

2. Whether the copies of judgment may be marked : Yes/No

to Law Reporters/Journals:

3. Whether the Lordship wishes to see the fair copy : Yes/No

Of the Judgment?

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W.P.No.15955 of 2021

*IN THE HIGH COURT OF ANDHRA PRADES H AT AMARAVATI

* HON’BLE SRI JUSTICE R. RAGHUNANDAN RAO

HON’BLE SRI JUSTICE T.C.D.SEKHAR

+ W.P.No.15955 of 2021

% Dated: 31-01-2026

1. M/S SHILPA MEDICARE LIMITED, SURVEY NO. 207, MODAVALASA

VILLAGE, DENKADA MANDAL, VIZIANAGARAM -531162. ANDHRA

PRADESH.

2. HAVING THEIR CORPORATE AND ADMIN OFFICE, AT. M/S. SHILPA

MEDICARE LIMITED, SHILPA HOUSE 12 -6-214/A-1, HYDERABAD

ROAD, RAICHUR-584 135, KARNATAKA.

3. REPRESENTED BY ITS FINANCE MANAGER, SHRI. RAMAKANT

INNANI, S/O.NATHMAL INNANI AGED 43 YEARS, R /O. H. NO. 7-5-

204, JAWAHAR NAGAR, RAICHUR - 584 101 KARNATAKA.

...PETITIONER(S)

AND

$1. UNION OF INDIA, REPRESENTED BY ITS SECRETARY MINISTRY

OF FINANCE (DEPARTMENT OF REVENUE) NO.137, NORTH

BLOCK, NEW DELHI-110001.

2. UNION OF INDIA, REPRESENTE D BY ITS SECRETARY MINISTRY

OF LAW AND JUSTICE, 4TH FLOOR, A, WING, RAJENDRA

PRASAD ROAD, SHASTRI BHAVAN, NEW DELHI -110 001.

3. THE GOODS AND SERVICES TAX COUNCIL, REPRESENTED BY

ITS SECRETARY OFFICE OF THE GST COUNCIL SECRETARIAT,

5TH FLOOR, TOWER II, JEEVAN BHARTI BUILDING, JANPATH

ROAD, CONNAUGHT PLACE, NEW DELHI -110 001.

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W.P.No.15955 of 2021

4. THE STATE OF ANDHRA PRADESH, REPRESENTED BY ITS

CHIEF SECRETARY, BUILDING 1, 1ST FLOOR, INTERIM

GOVERNMENT COMPLEX,A.P. SECRETARIAT, VELAGAPUDI,

GUNTUR- 522 503, ANDHRA PRADESH.

5. THE APPELLATE AUTHORITY FOR ADVANCE RULING, FOR THE

STATE OF ANDHRA PRADESH (GOODS AND SERVICE TAX),

OFFICE OF THE CHIEF COMMISSIONER OF STATE TAX,

GOVERNMENT OF ANDHRA PRADESH, BUNDER ROAD,

EDUPUGALLU, VIJAYAWADA - 521 151, ANDHRA PRADESH.

6. THE AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH,

(GOODS AND SERVICE TAX), D. NO. 5-56, BLOCK-B, R.K. SPRING

VALLEY APARTMENTS, EDUPUGALLU, VIJAYAWADA - 521 151,

ANDHRA PRADESH.

7. THE DEPUTY COMMISSIONER OF CENTRAL TAX,

VIZAINAGARAMCENTRAL GS T DIVISION, NEAR

DANDUMARAMMA TAMPLE, CONTONMENT AREA,

VIZAINAGARAM - 535 003 ANDHRA PRADESH.

...RESPONDENT(S):

! Counsel for petitioner : Sri V. Raghuraman, the learned Senior

Counsel appearing on behalf of Sri Anil Kumar

Bezawada

^Counsel for Respondents : Sri P.S.P. Suresh Kumar

<GIST :

>HEAD NOTE:

? Cases referred:

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APHC010274472021

IN THE HIGH COURT OF ANDHRA PRADESH

AT AMARAVATI

(Special Original Jurisdiction)

[3529]

SATURDAY, THE THIRTY FIRST DAY OF JANUARY

TWO THOUSAND AND TWENTY SIX

PRESENT

THE HONOURABLE SRI JUSTICE R RAGHUNANDAN RAO

THE HONOURABLE SRI JUSTICE T.C.D.SEKHAR

WRIT PETITION NO: 15955/2021

Between:

1. M/S SHILPA MEDICARE LIMITED, SURVEY NO. 207, MODAVALASA

VILLAGE, DENKADA MANDAL, VIZIANAGARAM -531162. ANDHRA

PRADESH.

2. HAVING THEIR CORPORATE AND ADMIN OFFICE, AT. M/S. SHILPA

MEDICARE LIMITED, SHILPA HOUSE 12 -6-214/A-1, HYDERABAD

ROAD, RAICHUR-584 135, KARNATAKA.

3. REPRESENTED BY ITS FINANCE MANAGER, SHRI. RAMAKANT

INNANI, S/O.NATHMAL INNANI AGED 43 YEARS, R/O. H. NO. 7-5-

204, JAWAHAR NAGAR, RAICHUR - 584 101 KARNATAKA.

...PETITIONER(S)

AND

1. UNION OF INDIA, REPRESENTED BY ITS SECRETARY MINISTRY

OF FINANCE (DEPARTMENT OF REVENUE) NO.137, NORTH

BLOCK, NEW DELHI-110001.

2. UNION OF INDIA, REPRESENTED BY ITS SECRETARY MINISTRY

OF LAW AND JUSTICE, 4TH FLOOR, A, WING, RAJENDRA

PRASAD ROAD, SHASTRI BHAVAN, NEW DELHI -110 001.

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3. THE GOODS AND SERVICES TAX COUNCIL, REPRESENTED BY

ITS SECRETARY OFFICE OF THE GST COUNCIL SECRETARIAT,

5TH FLOOR, TOWER II, JEEVAN BHARTI BUILDING, JANPATH

ROAD, CONNAUGHT PLACE, NEW DELHI -110 001.

4. THE STATE OF ANDHRA PRADESH, REPRESENTED BY ITS CHIEF

SECRETARY, BUILDING 1, 1ST FLOOR, INTERIM GOVERNMENT

COMPLEX,A.P. SECRETARIAT, VELAGAPUDI, GUNTUR - 522 503,

ANDHRA PRADESH.

5. THE APPELLATE AUTHORITY FOR ADVANCE RULING, FOR THE

STATE OF ANDHRA PRADESH (GOODS AND SERVICE TAX),

OFFICE OF THE CHIEF COMMISSIONER OF STATE TAX,

GOVERNMENT OF ANDHRA PRADESH, BUNDER ROAD,

EDUPUGALLU, VIJAYAWADA - 521 151, ANDHRA PRADESH.

6. THE AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH,

(GOODS AND SERVICE TAX), D. NO. 5 -56, BLOCK-B, R.K. SPRING

VALLEY APARTMENTS, EDUPUGALLU, VIJAYAWADA - 521 151,

ANDHRA PRADESH.

7. THE DEPUTY COMMISSIONER OF CENTRAL TAX,

VIZAINAGARAMCENTRAL GST DIVISION, NEAR DANDUMARAMMA

TAMPLE, CONTONMENT AREA, VIZAINAGARAM - 535 003

ANDHRA PRADESH.

...RESPONDENT(S):

Petition under Article 226 of the Constitution of India praying that in the

circumstances stated in the affidavit filed therewith, the High Court may be

pleased tomay be pleased to issue a writ, order or direction more particularly

one in the nature of writ of Mandamus to declare the order of the respondent

No. 5 in Order/AAAR/AP/07(GST)/2020 dated 10th November 2020 without

following due process of law as arbitrary, in the interest of justice.

IA NO: 1 OF 2021

Petition under Section 151 CPC praying that in the circumstances stated

in the affidavit filed in support of the petition, the High Court may be pleased

may be pleased to direct the respondents not to proceed against the

petitioner, without following due process of law pending disposal of the Writ

Petition in the interest of justice.

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W.P.No.15955 of 2021

IA NO: 1 OF 2025

Petition under Section 151 CPC praying that in the circumstances stated

in the affidavit filed in support of the petition, the High Court may be pleased

may be pleased to grant leave to the respondent to file the counter affidavit

and pass

Counsel for the Petitioner(S):

1. ANIL KUMAR BEZAWADA

Counsel for the Respondent(S):

1. DEPUTY SOLICITOR GENERAL OF INDIA

2. P S P SURESH KUMAR

Date of Reserved : 05.01.2026

Date of Pronouncement : 31.01.2026

Date of Upload : 31.01.2026

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W.P.No.15955 of 2021

The Court made the following Order:

(per Hon’ble Sri Justice R. Raghunandan Rao)

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.

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,

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was transferred to the Bangalore Unit for Zero consideration. The R&D

business undertaking, which was the subject matter of the transfer, was

defined, under the business transfer agreement of 26.06.2019 in the following

manner:

R&D Business Undertaking" means the undertaking of the R&D

Business consisting of the following:

a) Movable Property of the R&D Business Undertaking As a part of

Annex-1.

b) All Assets Book debts, advances, deposits, receivables as per books

of record on the date of transfer.

c) All Liabilities including statutory on the date of transfer.

d) All Employees to this Agreement, on the same terms and conditions

of service as they are employed by the Transferor, including as to length and

continuity of service including long term & short Term benefit.

e) Books, Records and Ledgers: Customer contracts, know -how,

brands and other Intangibles, as may be mutually agreed between the Parties

and;

f) Technical or other information if any used primarily in connection

with (a) to (e) above and as agreed between the Parties on or prior to the

Closing Date.

3. After executing this agreement, the petitioner had approached

the Authority for Advance Ruling for a ruling, on the following three questions:

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1. Whether the transaction would amount to supply of goods or supply

of services or supply of Goods & Services?"

2. Whether the transaction would be covered Sl.No.2 of the Notification

No.12/2017- Central Tax (Rate) dated 28.6.2017?

3. Can we file GST ITC-02 return and transfer unutilized ITC from

Vizianagaram, Andhra Pradesh unit to Bengaluru, Karnataka Unit?

4. The authority for advance ruling by its decision, dated

24.02.2020, in AAR No.05/AP/GST/2020, had held that the transaction was a

supply of services, which was covered under SL.No.2 of Notification

No.12/2017-Central Tax (Rate), exempting the said transaction from tax. The

authority also held in the affirmative, that the unutilized input tax credit

available in the Vizianagaram Unit could be transferred to the Bangalore Unit.

The said input tax credit was Rs.2,29,24,118/- under the IGST Act,

Rs.50,50,789/- under the CGST Act and Rs.35,40,668/- under the APGST

Act.

5. Aggrieved by the decision of the Authority for Advance Ruling, the

Deputy Commissioner of Central Tax, Vizianagaram Central GST Division,

moved an application, on 25.08.2020, before the Appellate Authority on

Advance Ruling, seeking clarification whether such a 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

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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 exclude the sale of entire business undertaking as

a going concern. Apart from this, there is no consideration for the said transfer

and as such, the provisions of Section 7 of the CGST Act, including entry No.2

of Schedule-I would not be attracted, as the transfer is not in the course of or

in furtherance of business.

B) The transaction would not be a supply of service also as the transfer

of goods, in the course of sale of a business, would not constitute a taxable

supply and as such, cannot be treated as supply of services also.

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C) Even if the transfer of business is to be treated as "a supply of

services", the same would be exempt in view of entry No.2 of Notification

No.12/2017-CT (R), dated 28.07.2017.

D) The input tax credit available with the Vizianagaram Unit, can be

transferred to the Bangalore Unit, in view of the Section 18(3) of the CGST

Act, which stipulates that Where there is a change in the constitution of a

registered person on account of sale, merger, etc., of the business with the

specific provisions for transfer of liabilities, the input tax credit can be

transferred to the person who shall be running a business which is

transferred. The finding of the Appellate Authority for Advance Ruling that the

provisions of Section 18(3), read with relevant rules, would be available only

to two separate persons and would not be available to the petitioner inasmuch

as the transfer is only within the branches of the petitioner, is incorrect.

Section 29 which provides for cancellation of registration on account of

business for any person read with the provisions of Section 25(4) and 25(5) of

the GST Act which requires the separate registration for the same business

entity and which stipulates that such separate registration will result in the

same person being treated as separate and distinct persons for the purpose of

the Act.

E) The finding of the appellate authority for advance ruling that there is

no provision for transfer of input tax credit inasmuch as the same would

deprive Andhra Pradesh of its share in tax is incorrect as the Goods and

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Services Tax Act, 2017 provides for settlement between Centre and States on

account of gross utilization including the transfer by ISD.

9. The 7th respondent, Deputy Commissioner of Central tax has

filed a counter affidavit, reiterating the findings of the appellate authority 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 the definition of

business set out in section 2(17)(d) of the CGST Act. The judgment of the

Andhra Pradesh High Court in Paradise Food Court vs. State of

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Telangana

1

., in the context of A.P VAT Act, had held that business cannot be

treated as movable property or goods. Consequently, the said transfer can

only be treated as a supply of services. Entry 4(c) of Schedule-II of the CGST

Act defines transfer of business assets where business is transferred, as a

going concern, to another person. In the present case, the transfer is between

two units of the petitioner and there is no 'another person', to whom the

business is sold and consequently, the petitioner cannot claim that the transfer

of the R&D Unit amounts to sale of the business itself. This is further fortified

by the fact that both the units had the same PAN number and cannot be

treated as separate persons, though they may be "distinct persons" under the

provisions of the GST Act.

iii) Section 18(3), relied upon by the petitioner for transfer of input tax

credit, requires a change in the constitution of the registered person, on

account of transfer of business or part of the business. In the present case,

there is no such change in the constitution of the registered person and

consequently Section 18(3) and the rules to be read with this provisions,

would not be applicable to the case.

Consideration of the Court:

10. Section 9 of the CGST Act as well as the APGST Act levies tax,

on all Intra State supplies of goods or services or both, except on the supply of

alcoholic liquor for human consumption. The tax on supply of petroleum and

its products is also excluded till it is brought within the fold of the GST Act, at

1

2018(16) G.S.T.L.361 (A.P.)

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some later stage. The levy of tax is, therefore, dependent on whether there is

"supply" of goods or services. The term "supply" is defined in Section 7.

Section 7(1)(a) and (c) which read as follows, are relevant:

Section 7(1)(a) and (c)

(a) all forms of supply of goods or services or both such as sale,

transfer, barter, exchange, licence, rental, lease or disposal made or agreed to

be made for a consideration by a person in the course or furtherance of

business;

(c) the activities specified in Schedule I, made or agreed to be made

without a consideration.

11. Section 7(1)(a) would be applicable when the supply is 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

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W.P.No.15955 of 2021

Hyderabad for the State of Telangana and the State of Andhra Pradesh in

Coromandal Fertilizers Limited vs. State of Andhra Pradesh

2

, 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:

"Whether in a transaction of sale of an undertaking as a going

concern with all assets and liabilities for a lump sum without

stipulating any price for individual items, the assessing

authority could consider that there was a sale of goods within

the meaning of section 2(n) read with sections 2(h) and 2(s)

for charging the same to tax under section 5 of the Andhra

Pradesh General Sales Tax Act."

13. The Full Bench after considering the earlier judgments of the

Hon’ble High Court at Madras in Deputy Commissioner (CT) vs. Behanan

Thomas

3

and other judgments of other high courts had disposed of the

reference in the following manner:

70. We are therefore of the view that transfer of goods

involved in the process of disposing of the entire cement

manufacturing unit hitherto owned by the petitioner-company

does not tantamount to "business" within the meaning of

section 2(1)(bbb) of the Act and the sale is not "in the course

of business". The charge to tax is therefore not attracted under

the APGST Act. The conclusion which we have reached is in

accord with the view taken by Madras, and Madhya Pradesh

High Courts in the cases referred to supra. The view of the

2

1999 (112) STC 1

3

1977 (39) STC 325 (Madras

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W.P.No.15955 of 2021

Full Bench of the Kerala High Court is also that there is no

taxable sale in a transaction of this nature

71. In the view, we have taken, there is no need to answer the

question whether the disputed transactions can be regarded

as "sales" within the meaning of the Sale of Goods Act and

any sale price is attributable to the movables involved in the

transfer of the business undertaking.

14. The aforesaid view was on the basis of definition of sale under

Section 2 (1) (n) and the definition of “business” under section 2 (1) (bbb), of

the A.P.G.S.T. Act, which reads as follows:

section 2(1)(n):

"Every transfer of the property in goods (whether as such

goods or in any other form in pursuance of a contract or

otherwise) by one person to another in the course of trade or

business, for cash, or for deferred payment, or for any other

valuable consideration...............”

Section 2 (1) (bbb):

"Business includes-

(i) any trade, commerce or manufacture or any

adventure or concern in the nature of trade, commerce or

manufacture whether or not such trade, commerce,

manufacture, adventure or concern is carried on or

undertaken with a motive 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."

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W.P.No.15955 of 2021

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 important

aspect. As we have pointed out earlier, sale of business as a

whole is not made taxable even now under the charging

provision. It is only the sale of goods which is chargeable under

Section 4(1). The definition of the expression 'sale' would apply

to a case only if the sale takes place in the course of trade or

business, as per Section 2(28). A business in entirety, cannot

be sold in the course of trade of business, as there will be no

business left thereafter, to deal with. Therefore, the amendment

brought forth to the definition of the expression "business" could

not have changed the dynamics of the game, when the

charging provision and the definition of the expression "sale"

remained the same. Hence the reliance placed upon the

decision of the Full Bench of the Madras High Court in Natesa

Mudaliar, is completely misplaced.

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38. As we have indicated earlier, the transfer of business as a

whole is not per se included in the charging provision. It is only

by virtue of a logic that every transfer of business would also

include a sale of goods of the business that the charging

provision is sought to be invoked. When the transfer of

business by itself is not made chargeable to tax and when the

definition of the word "sale" would apply when there is a sale in

the course of business or trade, the very nomenclature given in

Rule 36 as though the transfer of business is exempt from VAT,

is redundant.

45. In the case on hand another important feature is that the

petitioner which is a partnership firm, sought to transfer the

entire business as going concern under a business transfer

agreement to provide limited company of which the partners of

the petitioner were the shareholders. In consideration of the

transfer of the business as a whole, the partners of the

petitioner were allotted equity shares and preferential shares in

the company. Therefore, to treat the same as a sale of goods

merely on the ground that all the assets of business are

individually mentioned in the Schedule together with their value,

is completely contrary to the Statutory prescription. Therefore,

the impugned order has been passed on an assumed

jurisdiction, where none exists. The impugned order has been

passed on a complete misunderstanding of the purport of the

decision of the Full Bench in Coromandal Fertilisers Limited, the

effect of Section 2(6) read with Section 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

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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 taxation of supply of services or to even treat

transfer of business as a going concern, as a supply of service. However, this

Court is leaving this issue open inasmuch as the petitioner would still be

entitled to the benefit of exemption by virtue of the notification.

18. The question of whether the input tax credit available with the

Vizianagaram Unit could be transferred to Bangalore remains. The 7

th

respondent contends that such a transfer is impermissible on two grounds.

Firstly, there has to be a change in the constitution of the registered person,

under Section 18(3) of the CGST Act whereas there is no change in the

registered person in the present case. Secondly, input tax credit which

accrued under the APGST Act cannot be transferred to the credit of the

petitioner in Karnataka which is governed under the KGST Act.

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Section 18(3) reads as follows:

18(1)-----

(18)(2)----

(18)(3) Where there is a change in the constitution of a registered

person on account of sale, merger, demerger, amalgamation, lease

or transfer of the business with the specific provisions for transfer of

liabilities, the said registered person shall be allowed to transfer the

input tax credit which remains unutilised in his electronic credit

ledger to such sold, merged, demerged, amalgamated, leased or

transferred business in such manner as may be prescribed.

19. This provision states that there could be transfer of unutilized

input tax credit when there is a change in the constitution of the registered

person on account of sale, merger, demerger, amalgamation, lease or transfer

of the business. The term “change in the constitution” has been understood,

by the appellate authority for advance ruling, to mean that the structure of the

registered person has to change from a proprietary firm to a partnership firm

or from a partnership firm to a company etc. This construction of the term

“change in the constitution of the registered person” does not appear to be

correct. In the case of a sale, the transaction would be between a seller and

buyer, who are two separate persons or entities. There would not be any

change on account of a sale. However, the language of Section 18(3)

provides for transfer of input tax credit in cases of sale also. Similarly, in the

case of a merger or amalgamation or lease, the registered person who is

transferring the business 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

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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 transferor, arises out of the tax component paid on the goods, by the

transferor, etc. The input tax so credited has to be used, to discharge further

liability, to the tax authorities. This is one of the assets available with the

transferor. In the case of a sale of the entire business, it would only be

reasonable that this asset, in the form of input tax credit, is also transferred.

Section 18(3) is giving a statutory basis for such transfer.

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22. Another aspect which has been raised, is the contention that the

transfer from a registered person, should be to “another person” for availing

the benefit of the above provisions. In the normal course, both the units in

Andhra Pradesh and Karnataka, would be treated as part of one entity namely

the petitioner and there would be no transfer of business or supply of goods

between the unit of the petitioner in Andhra Pradesh and the unit of the

petitioner in Karnataka. Section 25(4) and 25(5) of the GST Act requires

separate registration for the same business entity, in certain circumstances.

These provisions further stipulate that such separate registration will result in

the same person being treated as “distinct persons” for the purpose of the Act.

The petitioner has separate registrations in the state of Andhra Pradesh and

the State of Karnataka. Due to these registrations, the unit of the petitioner, in

Karnataka, is treated as a separate person from the unit of the petitioner in

Andhra Pradesh. On account of this situation, the transfer of business, within

the petitioner, is sought to be taxed. In such a situation, the authorities having

treated these two units of the petitioner, as separate entities, cannot contend

that these two units are parts of the same registered person and that there is

no transfer.

23. The second objection, raised by the appellate authority is that

there can be no transfer of Input Tax Credit, available under the APGST Act,

to the petitioner, under the KGST Act. Sri Raghuraman contends that this is

permissible as the credit, so given, under the KGST Act, can be adjusted

under the available provisions. We do not foresee any such problems in

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relation to the input tax credit available under the Central GST Act or the IGST

Act, as the authority administering these Acts is the Central Government. In

the case of transfer, of input Tax Credit, from the APGST Act to the KGST Act,

any decision would affect the State of Andhra Pradesh and the State of

Karnataka. However, the State of Karnataka, is not before us. As such, it

would be appropriate that this issue should be placed before the authorities,

under the KGST Act as well as the APGST Act, for a decision, as to the

admissibility of such a transfer between the APGST Act and the KGST Act.

The petitioner, may approach the authorities, in this regard and agitate it’s

rights.

24. Accordingly, this writ petition is disposed of, by setting aside the

ruling of the Appellate Authority for Advance ruling, dated 10.11.2020. Further

consideration of the issue, by the authorities, shall be on the basis of the

observations, in this order.

As a sequel, pending miscellaneous petitions, if any, shall stand closed.

There shall be no order as to costs.

_______________________________

R. RAGHUNANDAN RAO, J

____________________

T.C.D. SEKHAR, J

RJS

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THE HON’BLE SRI JUSTICE R. RAGHUNANDAN RAO

&

THE HONOURABLE SRI JUSTICE T.C.D.SEKHAR

WRIT PETITION No: 15955 of 2021

(per Hon’ble Sri Justice R.Raghunandan Rao)

31.01.2026

RJS

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