The Bombay High Court, in a recent ruling in Umicore Autocat India Pvt. Ltd. v. Union of India & Ors., Writ Petition No. 463 of 2024, clarified a crucial issue under the GST regime-whether Input Tax Credit (ITC) can be transferred across states post-amalgamation.
How It All Started?
Umicore Autocat India Pvt. Ltd., registered in Maharashtra, had merged with Umicore Anandeya India Pvt. Ltd., which was registered in Goa. This merger was approved by the NCLT way back in May 2020, effective from April 2019.
Post-amalgamation, the Transferor (Goa unit) had unutilized ITC balances in its electronic credit ledger. The petitioner sought to transfer these credits by filing Form GST ITC-02. However, the same was rejected with an error message "Transferee and Transferor should be of the same State/UT" Pursuant thereto, the Transferor Company raised a query on the GSTN portal for the above error and received a reply that the system is showing an error due to business logic. The Transferor Company made a representation to the State Tax Officer on 17.08.2020 and received a reply on 06.10.2020 stating that they do not have the option or feature in their system to resolve the technical issues faced by them on the GSTN portal. After failed administrative remedies, the petitioner, therefore, filed Writ Petition (L) No. 4263 of 2022, before the Goa Bench.
What did the Petitioner argue?
- The petitioner relied on Section 18(3), which clearly provides that where there is a change in the constitution of the registered person on account of sale, merger, demerger, amalgamation lease or transfer of the business with the specific provisions for transfer of liabilities, in such circumstances, the said registered person shall be allowed to transfer the ITC which is un-utilized in his electronic credit ledger to the sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.
- Further, Rule 41, which has set out the procedure for transfer of credit on sale, merger, amalgamation, lease or transfer of business, does not impose any territorial restriction on ITC transfer.
- Since the scheme of amalgamation included the transfer of liabilities and assets, the ITC must logically follow.
- The rejection was due to technical constraints in the GSTN portal, not due to any legal bar.
- They relied on Article 269A and the overall GST structure to emphasize the principle of destination-based consumption tax and seamless ITC flow.
What the Department had to Say?
- The Respondent relied on Section 16 which determines the eligibility and conditions for availing ITC and accordingly, this benefit is available to every registered person, who is entitled to take credit of input tax filed, charged on supply of goods or services or both, which are used or intended to be used in the course of furtherance of his business and such amount shall be credited to the electronic credit ledger of such a person. As per Section 25(4), Each registration under GST is "distinct".
- If ITC has been earned in a particular State then it must be utilized only in that State and its benefit cannot be extended in a State where it did not originate.
- The GST portal allows transfers only between entities registered in the same State. Allowing cross-state ITC transfer would breach the distinct-person principle and lead to loss of SGST revenue to the originating state (Goa).
- The authorities cited MMD Heavy Machinery (India) Pvt. Ltd. v. AC, Chennai where the Madras HC refused ITC transfer in similar cross-state circumstances.
What did the Court Say and Order?
- The Court rejected the Revenue's arguments and agreed with the petitioner. It stated that nowhere in Section 18(3) or Rule 41 is there any restriction on ITC transfer across states.
- Had the legislature had any intention to cast an embargo or impose a restriction, it should have been specified. The GST law must be interpreted based on what is written, not what is presumed. No artificial limitation should be read into the statute.
- The GST law was brought in to eliminate cascading taxes and simplify the credit chain. The whole intent behind allowing ITC transfer during mergers is that the liabilities and assets of the old company now belong to the new entity-regardless of where it is registered.
- The Madras High Court's decision in MMD Heavy Machinery (India) Pvt. Ltd. doesn't apply here, as it was based on entirely different facts and legal context-it dealt with unutilized ITC under the old Cenvat Credit Rules from a unit that had shut down before GST was introduced, and not with a transfer of credit arising from an amalgamation under the GST framework.
- It upheld that ITC (IGST and CGST) must flow to the amalgamated entity as liabilities also flow. The existence of a technical portal error is no justification to deny statutory rights.
- However, the court accepted the petitioner's voluntary waiver of SGST credit (Rs. 1,39,285) to avoid prejudice to the State of Goa.
Final Order
In the peculiar circumstances, we permit the IGST and CGST amount lying in the electronic credit ledger of the Transferor Company to be transferred to the Petitioner Company by physical mode for the time being, subject to the adjustments to be made in future. However, we also request the GST Council, i.e. Respondent No. 4 as well as the GST Network i.e. Respondent No 2 to provide for mechanism to deal with such contingencies, when the ITC is sought to be transferred from one State to another or from one State to any Union Territory by updating its network to deal with such a situation. We expect the Respondents to do the needful, within a period of six weeks from today. Writ Petition made absolute in the above terms.
Professional Insight
This landmark verdict provides clarity and relief to corporates facing challenges in post-amalgamation ITC transfers across states. It reaffirms the core GST principles of credit flow, uniformity, and business facilitation. Importantly, it also highlights the need for GSTN and the GST Council to proactively update systems in line with evolving jurisprudence and business realities.
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