Library / Goods and Services Tax: The Professional's Master Guide
58. Case Study 14: Going Concern, Slump Sale or Itemised Sale
58.1 Facts
Anand Engineering Works Pvt. Ltd. has one GSTIN in Maharashtra and two plants, at Pune and Nashik. It will sell the Pune plant to Precision Castings Ltd. in September 2026. The Pune plant has its own staff, customer contracts and order book.
Pune plant | Amount (Rs.) |
|---|---|
Land and building (completed, occupied) | 5,00,00,000 |
Plant and machinery | 3,00,00,000 |
Stock of raw material and finished goods | 80,00,000 |
Trade receivables | 50,00,000 |
Total assets | 9,30,00,000 |
Less: trade payables taken over | 70,00,000 |
Lump sum consideration | 8,60,00,000 |
The credit ledger balance of the Maharashtra GSTIN is Rs. 12,00,000. Total assets of the company, both plants, are Rs. 18,60,00,000. Separately, in August 2026 Anand sold an old press bought on 10 June 2023 (GST Rs. 7,20,000 taken as credit) for Rs. 5,00,000.
58.2 Issues
- GST on a transfer of a going concern, on a slump sale and on an itemised sale.
- Transfer of credit through ITC-02.
- Section 18(6) on the press sold separately.
58.3 Analysis and computation
Services by way of transfer of a going concern, as a whole or an independent part, are exempt under the services exemption notification. An independent part means a unit that can carry on business on its own after the transfer: here the Pune plant with its staff, contracts and order book qualifies. A slump sale is an income-tax concept: a lump sum for an undertaking without values for individual assets (see the companion guide on the Income-tax Act, 2025). For GST the question is not whether the price is a lump sum but whether a going concern passes. If it does, the slump sale is exempt; if only assets pass, each asset is taxed.
Mode | GST outcome | GST (Rs.) |
|---|---|---|
Transfer of the Pune plant as a going concern | Exempt | 0 |
Slump sale of the plant as a going concern | Exempt (same test) | 0 |
Slump sale of assets only, no business passes | Taxed asset by asset | 68,40,000 |
Itemised sale | Machinery and stock at 18%; land, building and receivables outside GST | 68,40,000 |
Plant and machinery 3,00,00,000 x 18% (CGST 9% + SGST 9%) | Rs. 54,00,000 |
Stock 80,00,000 x 18% | Rs. 14,40,000 |
Land and completed building: Schedule III, not a supply | Rs. 0 |
Receivables: actionable claims, Schedule III, not a supply | Rs. 0 |
GST on itemised sale | Rs. 68,40,000 |
On an itemised sale, Precision could take the credit, so the tax is a cash flow cost. Stamp duty and income tax often decide the mode; GST favours the going concern route because it avoids blocking Rs. 68 lakh of working capital.
Illustration 227: Transfer of credit through ITC-02 Step 1: Section 18(3) and rule 41 allow unutilised credit to pass on sale or transfer of business, where the liabilities are also transferred. Step 2: For a part of the business, credit is apportioned (as rule 41 lays down for a demerger, and as is commonly applied to other part transfers) in the ratio of the value of assets transferred to the value of all assets of the business (whether or not credit was taken on them): 9,30,00,000 / 18,60,00,000 = 50%. Step 3: Credit transferable = 12,00,000 x 50% = Rs. 6,00,000. Step 4: Anand files ITC-02 with a CA certificate on the liabilities transferred; Precision accepts it on the portal and the credit reaches its ledger. |
Illustration 228: Section 18(6) on the press sold separately Step 1: When capital goods on which credit was taken are supplied, the supplier pays the higher of the credit reduced by 5 percentage points for every quarter or part of a quarter from the invoice date, and tax on the transaction value. Step 2: From 10 June 2023 to the sale in August 2026: 12 full quarters and part of the 13th, so 13 quarters, a reduction of 65 percentage points. Step 3: Credit to be paid back = 7,20,000 x 35% = Rs. 2,52,000. Step 4: Tax on transaction value = 5,00,000 x 18% = Rs. 90,000. Step 5: Anand pays the higher, Rs. 2,52,000 (CGST Rs. 1,26,000, SGST Rs. 1,26,000). The buyer can take credit only of the tax shown on the invoice. |
58.4 Compliance and documentation
- Business transfer agreement listing staff, contracts and liabilities, to support going concern status.
- Invoice or bill of supply for the exempt transfer; GSTR-1 shows it as an exempt supply.
- ITC-02 by the transferor, acceptance by the transferee; transferee to register and amend its registration for the Pune place of business before the transfer date.
- For the press, tax invoice with the higher amount, and a working of quarters on file.
Key point Lessons GST follows substance: a lump sum for a unit that can run on its own is exempt; a lump sum for bare assets is taxed item by item. Credit in the ledger can travel with the business through ITC-02; plan it into the price. On selling a used capital good, compare the section 18(6) formula with tax on the price before fixing the price. |
Chapter summary • Transfer of the Pune plant as a going concern is exempt; slump sale is exempt only if a going concern passes. • An itemised sale would attract GST of Rs. 68,40,000 on machinery and stock. • ITC-02 can carry Rs. 6,00,000 of credit to the buyer. • The old press attracted Rs. 2,52,000 under section 18(6), more than tax on its price. |
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