Bombay HC set aside VAT demand on sale of business as a “going concern” (slump sale)
The facts before the HC were that the petitioner transferred its intellectual property rights (IPRs) and goodwill through a Business Transfer Agreement (BTA). The BTA constituted a slump sale of the petitioner’s entire domestic formulation business for a lump sum consideration.
**Key Points from the HC Ruling**
1. It is held that the BTA did not amount to a sale of goods within the purview of the Maharashtra Value Added Tax (MVAT) Act.
2. A transaction where the entire business is transferred “lock, stock, and barrel” constitutes a “transfer of business” and is not liable to VAT.
3. The AO cannot artificially separate IPRs and goodwill from the business transfer for taxation purposes.
4. Item 39 of Schedule C (tax on goods of intangible or incorporeal nature) does not apply to the BTA.
The significance of this ruling reaffirms that a slump sale of a business as a going concern cannot be subject to VAT by artificially dissecting the whole transaction and levying tax on individual assets or rights transferred as part of the business.
As far as I am aware, authorities have been raising GST demands on the portion of business sales or slump sales to the extent the consideration can be attributed to the non-competing clause of the BTA. This ruling will be a helpful reference in those cases.
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