Author: Ashwarya Sharma, Advocate | Co-Founder & Legal Head, RB LawCorp
Date: 11/03/2026
Introduction: When the Business Itself Is Transferred
The GST framework is designed to tax supplies of goods and services made in the course or furtherance of business. However, a conceptual distinction arises when the business itself is transferred, rather than individual goods or services forming part of that business.
This issue frequently emerges during corporate restructuring transactions, particularly where an undertaking is transferred as a going concern. The recent judgment of the Andhra Pradesh High Court in Shilpa Medicare Ltd. v. Union of India [(2026) 39 Centax 239 (A.P.)] revisits this distinction and provides clarity on two critical questions under GST law.
First, whether the transfer of an entire business unit as a going concern constitutes a taxable supply under GST.
Second, whether unutilized input tax credit can be transferred to the transferee entity, especially when the transfer involves registrations in different States.
The decision offers important guidance on the interpretation of Section 7 of the CGST Act (definition of supply) and Section 18(3) dealing with transfer of input tax credit in cases of business reorganization.
Factual Background
The petitioner company was engaged in pharmaceutical research and development, including development of active pharmaceutical ingredients and formulation products. The company operated two research and development centres—one located in Karnataka and another in Vizianagaram district of Andhra Pradesh.
As part of an internal restructuring exercise, the company decided to transfer its Vizianagaram R&D unit to its Bangalore unit through a Business Transfer Agreement. Under this agreement, the assets and liabilities of the Vizianagaram unit were transferred to the Bangalore unit as a going concern and without consideration.
This restructuring raised important GST implications, particularly regarding the taxability of the transfer and the treatment of accumulated input tax credit.
Proceedings Before the Advance Ruling Authorities
Following the restructuring, the petitioner approached the Authority for Advance Ruling (AAR) seeking clarification on three issues:
• Whether the transaction constituted a supply of goods, supply of services, or both under GST.
• Whether the transaction would qualify for exemption as transfer of a going concern under Notification No. 12/2017-Central Tax (Rate).
• Whether unutilized input tax credit could be transferred from the Andhra Pradesh unit to the Karnataka unit through Form GST ITC-02.
Decision of the Authority for Advance Ruling
The AAR held that the transaction amounted to a supply of services, but since it involved transfer of a going concern, it was exempt from GST under the relevant notification. The authority also permitted transfer of the unutilized input tax credit to the Bangalore unit.
Decision of the Appellate Authority for Advance Ruling
The Department challenged the ruling before the Appellate Authority for Advance Ruling (AAAR). The AAAR reversed the decision of the AAR and held that the transaction constituted a taxable supply of goods. It further denied the transfer of input tax credit from the Andhra Pradesh unit to the Karnataka unit.
Aggrieved by this decision, the petitioner approached the Andhra Pradesh High Court.
Issues Before the High Court
The High Court was called upon to examine two key questions:
• Whether GST was leviable on transfer of the R&D unit as a going concern.
• Whether the unutilized input tax credit could be transferred to the transferee unit under Section 18(3) of the CGST Act.
Decision of the High Court
Transfer of Business as a Going Concern
The Court first examined the charging provision under Section 9 of the CGST Act, which levies GST on supplies of goods or services.
It noted that GST liability arises only where a transaction qualifies as “supply” under Section 7 of the Act. The Court observed that GST law taxes supplies made in the course or furtherance of business, but not the sale of the business itself.
Drawing upon earlier precedents under the Sales Tax and VAT regimes, the Court held that transfer of an entire undertaking as a going concern stands on a fundamentally different footing from ordinary supplies of goods or services.
Since the transaction involved transfer of the entire R&D unit with its assets and liabilities, the Court concluded that it amounted to sale of the business undertaking itself and not supply of individual goods or services.
Accordingly, the transaction was held to fall outside the scope of GST.
Transfer of Input Tax Credit under Section 18(3)
The second issue concerned the transfer of unutilized input tax credit from the Andhra Pradesh unit to the Karnataka unit.
Section 18(3) of the CGST Act permits transfer of credit where there is sale, merger, demerger, amalgamation, lease or transfer of business along with liabilities.
The Department argued that such transfer was not permissible because there was no change in the constitution of the registered person.
The High Court rejected this narrow interpretation and held that the phrase “change in constitution” cannot be interpreted restrictively. If such interpretation were adopted, several forms of restructuring expressly mentioned in Section 18(3) would become redundant.
The Court further observed that input tax credit represents a valuable asset of the business, arising from taxes paid on procurements. When an entire business undertaking is transferred, it is commercially logical that this asset should move along with the business.
Accordingly, the Court held that Section 18(3) permits transfer of unutilized credit to the transferee entity.
Relevance of the Concept of “Distinct Persons”
The Court also considered Sections 25(4) and 25(5) of the CGST Act, which require separate GST registrations for establishments of the same entity in different States and treat them as distinct persons.
In the present case, the petitioner had separate registrations in Andhra Pradesh and Karnataka. Since the law treats these establishments as distinct persons, the authorities could not simultaneously argue that the transfer was merely an internal movement within the same entity.
The Court therefore held that the transfer of the R&D unit between two State registrations must be recognised as a transfer between distinct persons, making the provisions relating to transfer of input tax credit applicable.
Issue of Inter-State Transfer of State GST Credit
The Department also raised an objection regarding transfer of State GST credit from Andhra Pradesh to Karnataka, arguing that such transfer could affect the revenue of the respective States.
The Court observed that this issue required consideration by the relevant authorities under both APGST and KGST laws, since the State of Karnataka was not a party to the proceedings.
Accordingly, the petitioner was permitted to approach the concerned State authorities to resolve the issue relating to transfer of State GST credit.
Conclusion: Clarifying the Scope of Supply in Business Transfers
The Andhra Pradesh High Court’s decision provides significant clarity on GST implications of business restructuring transactions.
The Court has reaffirmed an important conceptual principle: GST is intended to tax supplies made in the course of business, not the transfer of the business itself.
Where an entire undertaking is transferred as a going concern along with assets and liabilities, the transaction stands outside the scope of supply under Section 7.
Equally significant is the Court’s recognition that input tax credit constitutes a valuable business asset that should ordinarily travel with the undertaking when it is transferred.
As corporate restructuring transactions—such as slump sales, mergers, demergers and internal reorganisations—become increasingly common, the principles laid down in this judgment assume wider relevance under GST law.
The ruling therefore reinforces a commercially realistic interpretation of the GST framework, ensuring that tax provisions align with the economic realities of business reorganisations.
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(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)
