GST Exemption on Sale of Running Business Unit as Going Concern
Karnataka AAR ruled that selling an entire running business unit as a going concern is a GST-exempt supply of service.
- Ruling
- KAR ADRG 06 / 2018 dated 23rd April, 2018
- Dated
- 23 Apr 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Rajashri Foods asked if selling a complete factory unit attracts GST
- Transferring a running business is classified as a supply of services
- The transaction qualifies for zero percent GST under tax exemption rules
- All assets and liabilities must be transferred together for this exemption
In short
Rajashri Foods Pvt. Ltd. operated three animal feed manufacturing units and planned to sell one independent unit for a single lump sum price. The company intended to transfer all fixed assets, current assets, and liabilities so the buyer could continue running the factory. The company asked the Karnataka Authority for Advance Ruling whether this sale counts as goods or services and if GST applies to it.
What has changed
How it worked before
Before this ruling, businesses were uncertain whether selling an operational division for a single price attracted GST on the individual assets transferred. Many feared paying standard GST rates on plant, machinery, and stock sold as part of a unit sale.
What has changed
The Karnataka Authority for Advance Ruling clarified in Order 06 dated 23-04-2018 that transferring an independent business unit as a going concern is a supply of services. It ruled that under Entry Sl. No. 2 of Notification No. 12/2017-Central Tax (Rate), this specific service carries a Nil rate of GST. In practice, selling an entire operational business unit with its assets and liabilities does not attract GST.
Who this affects
Businesses that plan to sell an entire running factory, independent division, or operational branch to another company for a lump sum amount.
An example
ABC Foods operates two flour mills and plans to sell one mill completely to another firm for a fixed lump sum. The sale includes the land, machinery, existing customer contracts, raw materials, and staff. Based on Karnataka AAR Order 06 dated 23-04-2018, this transfer is treated as a supply of service with zero GST. ABC Foods must ensure the buyer continues running the mill as an active business to support the exemption.
What you should do
Check whether your proposed transaction transfers all operational assets and liabilities so the buyer can run it without interruption. Note that an advance ruling binds only the business that applied for it and its specific tax officer. You should consult a tax professional or apply for your own advance ruling before claiming this GST exemption.
If you do nothing
If you claim a GST exemption without transferring the business as an active going concern, tax officers may treat the sale as an individual sale of goods. You could face demand notices for unpaid GST on machinery and stock, along with heavy interest and penalties.
The terms explained
- going concern
- A running business that is actively operating and expected to keep functioning after a transfer, rather than being closed down.
- supply of service
- Under GST law, any commercial activity or transfer that is not classified as a sale of physical goods.
- input tax credit
- The tax you pay on business purchases that you can deduct from the tax you collect on sales.
The ruling in detail
Authority for Advance Ruling
M/s Rajashri Foods Pvt. Ltd.
KAR ADRG 06 / 2018 dated 23rd April, 2018 · Karnataka
Questions before the authority
- Whether the transaction would amount to supply of goods or supply of services or supply of goods & services?
- Whether the transaction would cover under sl.no.2 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017?
Facts
The Applicant operates three animal feed manufacturing units and proposed to sell one independent unit at Hiriyur for a lump sum consideration. The sale envisaged transferring all fixed assets, current assets, and liabilities to the buyer as an ongoing operation. The Applicant filed for an advance ruling to clarify the GST classification and applicability of tax exemption on this transaction.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification of business unit transfer | Supply of service Transfer of business as a whole in the nature of a going concern |
| Exemption under Notification No. 12/2017-Central Tax (Rate) | Covered under Sl. No. 2 Subject to the condition that the unit is a going concern |
The Authority held that the transfer of an independent business unit as a going concern constitutes a **supply of service**. It further ruled that the transaction qualifies for GST exemption under Sl. No. 2 of Notification No. 12/2017-Central Tax (Rate), provided the unit is factually established as a **going concern**.
Reasoning
The Authority analyzed Section 7 and Schedule II of the CGST Act, 2017, noting that paragraph 4(c) of Schedule II excludes the transfer of a business as a going concern from being treated as a supply of goods. It then referred to Entry Sl. No. 2 of Notification No. 12/2017-Central Tax (Rate), which lists services by way of transfer of a going concern and prescribes a Nil rate of tax. Since the applicant proposed to transfer all assets and liabilities of an operational unit to be continued by the transferee, the transaction qualifies as a supply of service eligible for exemption.
Provisions relied on
- Section 7, CGST Act, 2017
- Section 7(1)(d), CGST Act, 2017
- Schedule II, CGST Act, 2017
- Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017
For the practitioner
This ruling establishes that a slump sale or transfer of an independent operational unit along with its assets and liabilities is classified as a **supply of service** rather than goods. It confirms that such transactions qualify for **Nil GST rate** under Notification No. 12/2017-Central Tax (Rate), provided the taxpayer maintains adequate documentary evidence to prove the business was transferred as an active going concern.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/06-rajashree_foods-aar-order.pdf
Legibility of the scan, as read: high.
Prepared 17-10-2026.
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