No VAT under Telangana VAT Act, 2005 on transfer of a business as a whole

 A careful look at the reason for Rule 36 being inserted, which cannot be correlated to anyone of the matters enumerated in Clauses (a) to (r) of sub-section (2) of Section 78, will show that in the entire Telangana VAT Act, 2005, the only place where a transfer of business as a whole is spoken about, is Section 13(5)(b).

Under Section 13(5)(b) of the Act, no Input Tax Credit shall be allowed on the transfer of a business as a whole. Therefore, this is an indication to the fact that the transfer of a business as a whole is not chargeable to tax under Section 4(1) merely on the ground that a transfer of business would naturally involve the sale of goods of the business. It is only with a view to keep the transfer of a business as a whole, out of the purview of the charging provision that input tax credit is denied under section 13(5)(b) and Rule 36 has been issued. Therefore, it is futile to contend that Rule 36 goes contrary to the Statutory prescription.

Transfer of business as a whole is not per se included in the charging provision. It is only by virtue of a logic that every transfer of business would also include a sale of goods of the business that the charging provision is sought to be invoked. When the transfer of business by itself is not made chargeable to tax and when the definition of the word sale would apply only when there is a sale in the course of business or trade, the very nomenclature given in Rule 36 as though the transfer of business is exempt from VAT, is redundant.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT