Piramal Enterprises Hit With Rs 1,501 Crore GST Demand Over Pharma Business Sale
Piramal Enterprises Ltd. has disclosed receiving a substantial goods and services tax (GST) demand order amounting to Rs 1,501 crore, according to an exchange filing made on Friday, February 28, 2025. The demand, which includes tax, interest, and penalties, has been issued by the office of the deputy commissioner of state tax, Maharashtra.
Details of the Tax Demand
According to the regulatory filing, the tax demand relates to a major corporate restructuring undertaken by Piramal in fiscal year 2021 - specifically, the sale of its pharma business to Piramal Pharma Ltd., along with the transfer of subsidiary companies. The total transaction value involved in this restructuring was Rs 4,487 crore.
Of the total demand amount, Rs 83 crore represents penalties imposed by the tax authorities. The core issue appears to be a disagreement regarding the classification of the transaction for tax purposes.
Dispute Over Transaction Classification
At the heart of this substantial tax demand is a fundamental disagreement about how the pharma business transfer should be classified for GST purposes. The Maharashtra tax department has contended that the transaction was not a "slump sale" (transfer of an entire business as a going concern) but rather an "itemized sale" of assets.
This classification difference is crucial from a tax perspective. Based on their interpretation, the tax authorities have levied GST at 18% on the entire sale consideration of Rs 4,487 crore, resulting in the significant tax demand now facing the company.
In corporate restructuring, the tax treatment of slump sales versus itemized asset transfers can have substantial financial implications, as evidenced by this case.
Company's Response and Expected Impact
Piramal Enterprises has taken a firm position regarding the validity of the tax demand. In its exchange filing, the company stated that it "believes that it has more than adequate grounds to support its position in the matter." The company plans to take appropriate legal steps to protect its interests and has expressed confidence in achieving a favorable outcome.
Notably, the company has provided assurance to investors that it "reasonably expects to have a favorable outcome of getting the order set aside." Furthermore, Piramal has indicated that based on its legal advice, the GST order will have no impact on its statement of profit and loss for the year, suggesting it does not currently plan to make provisions for this liability.
Recent Financial Performance Context
This tax challenge comes as Piramal Enterprises navigates a challenging financial landscape. For the quarter ended December 31, 2024, the financial services company reported a net profit of Rs 38.6 crore, which marks a substantial improvement from the loss of Rs 2,378 crore reported in the same period of the previous year.
However, this recent profit included an exceptional gain of Rs 376 crore, without which the company would have posted a loss of Rs 337.4 crore. The company's revenue for Q3 FY25 declined marginally by 1.1% to Rs 2,449 crore compared to Rs 2,476 crore in the corresponding quarter of the previous year.
The non-banking financial company also experienced a decline in its EBITDA, which fell by 10.8% to Rs 1,075 crore for the October-December quarter, down from Rs 1,205 crore for the same period in the previous fiscal year. Margins also narrowed to 43.9% from 48.7% year-on-year.
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