No GST on Slump Sale Transactions: Bombay High Court Ruling

Bombay High Court rules no GST on slump sale transactions. Case reaffirms business transfer as going concern, avoiding individual asset VAT.

Bombay High Court Confirms No GST on Slump Sale Transactions

In a landmark ruling involving Piramal Enterprises Limited under the old VAT statute, the Bombay High Court (BHC) has reinforced that a business transfer as a going concern is considered a slump sale. This means the assets involved in the business cannot be individually subjected to VAT, affirming the stance that GST does not apply to slump sale transactions.

Case Background and VAT Assessment

The case focused on the VAT assessment for the financial year 2010-11, which concluded that the transaction was a “going concern” basis and therefore not liable for VAT. However, in 2017, a demand of INR 2,607 crores (approximately US$314 million) was issued, arguing that the transaction included the transfer of a right to use intellectual property for a fixed period, constituting a “sale” under the VAT law at the time.

Key Judgments and Implications

The BHC’s judgment clarified several points:

• Nature of Slump Sale: The sale, intended as a business transfer on a “going concern slump sale” basis, should be treated as the sale of a single asset. Dissecting the transaction into separate assets and liabilities contradicts the fundamental nature of a slump sale.

• Interpretation of the BTA: The Business Transfer Agreement (BTA) must be interpreted as a whole, reflecting the parties’ intentions. The allocation of the purchase price in the BTA for stamp duty purposes should not redefine the transaction’s character for VAT purposes.

Drafting Considerations for IP Transfers

The ruling highlights the importance of careful drafting of intellectual property transfer or license clauses in such transactions. Ensuring these clauses do not appear distinct from the underlying business is crucial to avoid long-term tax litigation. The last thing a seller wants is to be embroiled in 14 years of tax disputes.