Business Transfer Agreement VAT Case Analysis

Business Transfer Agreement VAT Case Analysis

Introduction: In the case of Piramal Enterprises Ltd. v. The State of Maharashtra [Writ Petition No. 2836 of 2021 dated June 11, 2024], the Bombay High Court addressed the interpretation of a Business Transfer Agreement (BTA) concerning the leviability of VAT on the transfer of business assets, including intangible assets.

Facts of the Case: Piramal Enterprises Ltd. (the Petitioner), a pharmaceutical manufacturer, entered into a BTA with Abbott Healthcare Pvt. Ltd. (the Transferee Company) to transfer their “Base Domestic Formulations Business” on a slump sale basis under Section 2(42C) of the Income Tax Act, 1961. Subsequently, the BTA was amended to include additional assets such as trade names, logos, and goodwill.

The Revenue Department initially assessed the transaction under the Maharashtra Value Added Tax Act, 2002 (MVAT Act), exempting it from VAT as a transfer of business on a going concern basis. However, a show cause notice in 2017 challenged this assessment, alleging that the inclusion of intangible assets in the BTA constituted a sale of goods liable to VAT.

The Petitioner contested this claim, arguing that the breakdown of consideration for stamp duty purposes did not alter the fundamental nature of the transaction as a slump sale of the entire business.

Issue: The central issue was whether the transfer of the right to use intangible assets for a specified period under the BTA could be considered a sale of goods subject to VAT under the MVAT Act.

Held: The Bombay High Court held as follows:

This ruling underscores the importance of interpreting business agreements in their entirety and respecting the commercial intent agreed upon by the parties involved.

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