Facts of the Case:

In this case, the petitioner is engaged in research and development of active pharmaceutical ingredients and formulation products, having two registered R&D units, each holding separate GST registrations under the same PAN. Pursuant to a Business Transfer Agreement dated 26.06.2019, the petitioner transferred one of its R&D unit to the Bengaluru unit as a going concern, along with all assets, liabilities, employees, records, and intangibles, for zero consideration.

The petitioner approached the Authority for Advance Ruling (AAR) on whether the transaction constituted supply of goods or services, whether it was exempt under Notification No. 12/2017-CT (Rate), and whether unutilised ITC could be transferred from the Andhra Pradesh unit to the Karnataka unit via Form ITC-02. The AAR ruled in favour of the petitioner, holding that the transaction amounted to an exempt supply of services and permitted transfer of ITC. However, the Appellate Authority for Advance Ruling (AAAR) reversed this ruling, holding that the transaction was a taxable supply of goods and that transfer of ITC across State registrations was impermissible. Aggrieved, the petitioner challenged the AAAR order before the High Court.

Issue:

Whether transfer of an entire R&D unit as a going concern constitutes a “supply” under Section 7 of the CGST/APGST Acts.  Whether such transfer is taxable as supply of goods or services under GST law.

Held that:

The Court held that GST is leviable only on supplies made in the course or furtherance of business, as contemplated under Section 7(1)(a) of the CGST Act, and on activities listed in Schedule I under Section 7(1)(c). Reliance extensively placed upon earlier judgments under sales tax and VAT laws, particularly Coromandal Fertilizers Ltd. and Paradise Food Court. The Court reiterated that sale or transfer of an entire business undertaking as a going concern is fundamentally different from sale of goods in the course of business. Once a business itself is transferred in entirety, there remains no continuing business activity to which the charging provisions can attach.

Applying this principle to GST, the Court held that transfer of the entire Vizianagaram R&D unit, including assets and liabilities, amounted to transfer of business as a whole and not a supply of individual goods or services. Consequently, such a transaction does not qualify as a taxable “supply” under Section 7 of the CGST/APGST Acts. The Court further noted that Notification No. 12/2017-CT (Rate) treats transfer of a going concern as supply of services and grants exemption.

On the issue of transfer of unutilised ITC, the Court rejected the narrow interpretation adopted by the AAAR that Section 18(3) applies only where there is an internal change in the constitution of a registered person. The Court observed that Section 18(3) expressly contemplates transfer of ITC in cases of sale, merger, demerger, amalgamation, lease, or transfer of business—situations where the transferor often ceases to exist or exits the business altogether. Therefore, “change in constitution” cannot be read restrictively and must be understood as enabling transfer of ITC from the transferor to the transferee business.

Since the petitioner had separate GST registrations in Andhra Pradesh and Karnataka, Sections 25(4) and 25(5) deem such registrations to be “distinct persons” for GST purposes. Having treated the two units as separate persons for taxation, the authorities could not deny the corresponding statutory benefit of ITC transfer on the ground that both units belong to the same legal entity.

However, on the specific issue of transfer of ITC from APGST to KGST, the Court adopted a cautious approach. While observing that transfer of IGST and CGST credits would not pose difficulty as they are centrally administered, the Court held that transfer of State GST credit would impact revenue of two different States. Since the State of Karnataka was not before the Court, it refrained from issuing a conclusive ruling on this aspect and left it open for the petitioner to approach the respective State authorities for adjudication.

Accordingly, the Court set aside the AAAR ruling and disposed of the writ petition with the above observations.

Case Name:  M/s. Shilpa Medicare Limited Versus Union Of India, Represented By Its Secretary Ministry Of Finance (Department Of Revenue), The Goods And Services Tax Council, New Delhi, The State Of Andhra Pradesh, The Appellate Authority For Advance Ruling, For The State Of Andhra Pradesh (Goods And Service Tax), Andhra Pradesh, The Authority For Advance Ruling, Andhra Pradesh, (Goods And Service Tax), Andhra Pradesh, The Deputy Commissioner Of Central Tax, Vizainagaram. dated 31.01.2026

To read the complete judgement 2026 Taxo.online 235