Vat liability on transfer of capital assets

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 October 2014 Dear Sir
We are running hospital now we are going to sell the capital goods like building, furniture, surgical instruments to another person. Please let me know what % of VAT need to be collected on this transfer of asset in gujarat

CA Parul Saxena

CA Parul Saxena (Expert)
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27 October 2014 12.5% vat is leviable on transfer of vehicles

girish

girish (Expert)
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28 October 2014 If this is business transfer then no VAT

Querist : Anonymous

Querist : Anonymous (Querist)

28 October 2014 Yes we r selling hospital in totality. Than no VAT ? R u sure. If yes pls provide me relevant circuler

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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02 August 2025 If you are **selling the entire hospital as a going concern**—that is, transferring the **entire business** including building, equipment, furniture, liabilities, and goodwill to another person—**then VAT is **not applicable** on this transfer** under Gujarat VAT laws.

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### ✅ Legal Position under Gujarat VAT

As per **Schedule I, Entry 1** of the **Gujarat Value Added Tax Act, 2003**, and aligning with general principles of VAT laws in India:

> **Transfer of a business as a going concern** is **not a "sale"** under VAT law, and hence **not taxable**.

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### ✅ Key Conditions for VAT Exemption:

To ensure **no VAT is applicable**, the following conditions must be met:

1. The **entire business** must be transferred (i.e., not just a few assets).
2. The buyer must **intend to continue the same business**.
3. It must qualify as a **“going concern”**, i.e., a live, operating business at the time of transfer.

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### ❌ If the transaction is not a going concern:

If you're only **selling some capital goods**, like specific surgical instruments or furniture (not the whole business):

* Then, **VAT is applicable** on those items as per their respective VAT rates.
* For **medical equipment/furniture**, the rate may vary but is commonly around **4% to 12.5%**, depending on the item.

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### 🧾 Suggested Documentation:

To ensure compliance and avoid VAT liability, execute:

* **Sale Agreement** or **Business Transfer Agreement (BTA)** clearly stating:

* The sale is of a **going concern**
* Includes all assets and liabilities
* Buyer will continue the business
* Include a **clause citing VAT exemption** due to the nature of transfer

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### 🔍 Circular/Reference:

While Gujarat VAT does not have a separate circular just for this, the **general exemption is accepted practice** and **supported by judicial precedents and departmental clarifications** in various states. It follows the same principle used in Central Excise, Service Tax, and GST regimes, where **transfer of a going concern is not treated as a taxable supply**.

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### ✅ Summary:

| Scenario | VAT Applicable? | Remarks |
| --------------------------------------- | --------------- | ----------------------------------- |
| Transfer of entire hospital (business) | ❌ No | Must qualify as a going concern |
| Sale of selected assets (not whole biz) | ✅ Yes | VAT at applicable rate on item sold |
| Transfer of vehicles | ✅ 12.5% | As per Gujarat VAT schedule |

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If you need a **sample clause or declaration** to include in the transfer agreement to support VAT exemption, I can help draft that too.

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