No bar on transfer of Inter-state ITC upon amalgamation of the Company

A writ petition was filed challenging the denial of inter-state transfer of unutilized Input Tax Credit (ITC) pursuant to an NCLT-approved amalgamation, raising the legal question of whether such transfer could be denied on the ground that the transferor and transferee entities were registered in different States under the GST regime. The Hon’ble Gujarat High Court, in the case of Emerson Process Management (India) Pvt. Ltd. v. Union of India[SPECIAL CIVIL APPLICATION NO. 7006 of 2024 dated March 05, 2026] , held that Inter-State transfer of ITC pursuant to amalgamation is permissible under Section 18(3) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as ‘the CGST Act’), read with Rule 41 of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as ‘the CGST Rules’), and cannot be denied based on restrictions lacking statutory backing.

Facts:

Emerson Process Management (India) Pvt. Ltd. ( "the Petitioner" ) is a manufacturing company registered under GST in multiple states. The Petitioner, through a scheme of amalgamation approved by the NCLT, amalgamated with M/s Pentair Valves and Controls India Pvt. Ltd. (Transferor). As a result of this amalgamation, all the business operations of the transferor company, including all liabilities, assets, and unutilized ITC, which have been brought from the earlier Central Excise regime by the transferor company as transitional credit via TRAN-1, were also transferred.

The Petitioner attempted to transfer their credit using FORM GST ITC-02 as per the CGST Act, and the CGST Rules. However, the online GST portal displayed an error and denied the transfer request, by marking an endorsement in the very same Form ITC-02, indicating that both the Transferor, giving the credits, and the Transferee, receiving them, must be from the same state or Union territory.

Multiple attempts were made to rectify the issue by way of issuing reminder letters to the authorities and corresponding directly with the jurisdictional officers. However, no effective resolution was arrived at.

Issues:

• Whether the transfer of Input Tax Credit (ITC) under Section 18(3) of the CGST Act, read with Rule 41 of the CGST Rules, is permissible when an amalgamation involves entities registered in different States?
• Whether the GST authorities can impose restrictions that are not expressly specified within the scope of the statute?

Held:

The Gujarat High Court ruled that the Department cannot reject an Input Tax Credit (ITC) transfer claim by simply embossing in the statutory Form GST ITC-02, without providing cogent reasons separately and creating a procedural deficiency, such as in the present case wherein the statutory Form’s content and departmental reasoning were indistinguishable, and incorporations were made without referring to any provisions of the CGST Act.

The Court considered the Bombay High Court’s decision in Umicore Autocat India Pvt Ltd v. Union of India , wherein they analyzed Sections 18(3), 22, and 25 of the CGST Act, read in conjunction with Rule 41 of the CGST Rules. It was held that these provisions permit the transfer of ITC during an amalgamation, regardless of whether the transferor and transferee are registered in different States. The Court found no statutory embargo on such inter-state transfers for CGST and IGST components and asserted that the Department cannot read non-existent restrictions into the statute or enforce them through portal-based validations.

The Court further highlighted that the amalgamation had been duly approved by the NCLT, and the Petitioner had already accounted for the ITC in its books. Denying the transfer via the portal was deemed inconsistent with the approved scheme and the legislative intent of ensuring a seamless credit chain. Because the Petitioner restricted its claim to CGST/IGST, foregoing the SGST component as in the Umicore case, the Court focused its relief on those specific components.

The writ petition was allowed, with direction to the Department to allow the Petitioner to file Form ITC-02 manually. The Court clarified that until the GST portal is updated to accommodate such transactions, the Department is legally obligated to accept manual filings to ensure statutory rights are not curtailed by digital limitations.

Our Comments:

The Gujarat High Court’s ruling clarifies the purposive intent of the GST law, reaffirming that substantive rights cannot be abridged by reading restrictions into provisions, noting that the legislature deliberately omitted such limitations.

However, the judgment leaves certain legal complexities at the periphery. By restricting relief to CGST and IGST components, the Court avoided the friction inherent in the federal GST structure, where the inter-state transfer of SGST poses significant revenue allocation challenges. While the Court prioritized legal entitlement over administrative convenience, the structural treatment of SGST in cross-state mergers remains a potential point of deliberation for future litigation.

Relevant Provisions:

Section 18(3) - Availability of credit in special circumstances, CGST Act, 2017:

"Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provision for transfer of liabilities, the said registered person shall be allowed to transfer the unutilized input tax credit in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in the manner prescribed."

Section 22 - Persons liable for registration, CGST Act, 2017:

(1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.

Provided further that the Government may, at the request of a special category State and on the recommendations of the Council, enhance the aggregate turnover referred to in the first proviso from ten lakh rupees to such amount, not exceeding twenty lakh rupees and subject to such conditions and limitations, as may be so notified;

Provided also that the Government may, at the request of a State and on the recommendations of the Council, enhance the aggregate turnover from twenty lakh rupees to such amount not exceeding forty lakh rupees in case of supplier who is engaged exclusively in the supply of goods, subject to such conditions and limitations, as may be notified.

Explanation. - - For the purposes of this sub-section, a person shall be considered to be engaged exclusively in the supply of goods even if he is engaged in exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.

(2) Every person who, on the day immediately preceding the appointed day, is registered or holds a licence under an existing law, shall be liable to be registered under this Act with effect from the appointed day.

(3) Where a business carried on by a taxable person registered under this Act is transferred, whether on account of succession or otherwise, to another person as a going concern, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession.

(4) Notwithstanding anything contained in sub-sections (1) and (3), in a case of transfer pursuant to sanction of a scheme or an arrangement for amalgamation or, as the case may be, demerger of two or more companies pursuant to an order of a High Court, Tribunal or otherwise, the transferee shall be liable to be registered, with effect from the date on which the Registrar of Companies issues a certificate of incorporation giving effect to such order of the High Court or Tribunal.

Explanation. - - For the purposes of this section, - -

(i) the expression "aggregate turnover" shall include all supplies made by the taxable person, whether on his own account or made on behalf of all his principals;

(ii) the supply of goods, after completion of job-work, by a registered job worker shall be treated as the supply of goods by the principal referred to in section 143, and the value of such goods shall not be included in the aggregate turnover of the registered job worker;

(iii) the expression "special category States" shall mean the States as specified in sub-clause (g) of clause (4) of article 279A of the Constitution except the State of Jammu and Kashmir and States of Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and Uttarakhand.

Section 25 - Procedure for registration, CGST Act, 2017

(1) Every person who is liable to be registered under section 22 or section 24 shall apply for registration in every such State or Union territory in which he is so liable within thirty days from the date on which he becomes liable to registration, in such manner and subject to such conditions as may be prescribed:

Provided that a casual taxable person or a non-resident taxable person shall apply for registration at least five days prior to the commencement of business:

Provided further that a person having a unit, as defined in the Special Economic Zones Act, 2005, in a Special Economic Zone or being a Special Economic Zone developer shall have to apply for a separate registration, as distinct from his place of business located outside the Special Economic Zone in the same State or Union territory.

Explanation - Every person who makes a supply from the territorial waters of India shall obtain registration in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

(2) A person seeking registration under this Act shall be granted a single registration in a State or Union territory:

Provided that a person having multiple places of business in a State or Union territory may be granted a separate registration for each such place of business, subject to such conditions as may be prescribed.

(3) A person, though not liable to be registered under section 22 or section 24 may get himself registered voluntarily, and all provisions of this Act, as are applicable to a registered person, shall apply to such person.

(4) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.

(5) Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.

(6) Every person shall have a Permanent Account Number issued under the Income tax Act, 1961 (43 of 1961) in order to be eligible for grant of registration:

Provided that a person required to deduct tax under section 51 may have, in lieu of a Permanent Account Number, a Tax Deduction and Collection Account Number issued under the said Act in order to be eligible for grant of registration.

(6A) Every registered person shall undergo authentication, or furnish proof of possession of Aadhaar number, in such form and manner and within such time as may be prescribed:

Provided that if an Aadhaar number is not assigned to the registered person, such person shall be offered alternate and viable means of identification in such manner as Government may, on the recommendations of the Council, prescribe:

Provided further that in case of failure to undergo authentication or furnish proof of possession of Aadhaar number or furnish alternate and viable means of identification, registration allotted to such person shall be deemed to be invalid and the other provisions of this Act shall apply as if such person does not have a registration.

(6B) On and from the date of notification, every individual shall, in order to be eligible for grant of registration, undergo authentication, or furnish proof of possession of Aadhaar number, in such manner as the Government may, on the recommendations of the Council, specify in the said notification:

Provided that if an Aadhaar number is not assigned to an individual, such individual shall be offered alternate and viable means of identification in such manner as the Government may, on the recommendations of the Council, specify in the said notification.

(6C) On and from the date of notification, every person, other than an individual, shall, in order to be eligible for grant of registration, undergo authentication, or furnish proof of possession of Aadhaar number of the Karta, Managing Director, whole time Director, such number of partners, Members of Managing Committee of Association, Board of Trustees, authorised representative, authorised signatory and such other class of persons, in such manner, as the Government may, on the recommendations of the Council, specify in the said notification:

Provided that where such person or class of persons have not been assigned the Aadhaar Number, such person or class of persons shall be offered alternate and viable means of identification in such manner as the Government may, on the recommendations of the Council, specify in the said notification.

(6D) The provisions of sub-section (6A) or sub-section (6B) or sub-section (6C) shall not apply to such person or class of persons or any State or Union territory or part thereof, as the Government may, on the recommendations of the Council, specify by notification.

Explanation - For the purposes of this section, the expression "Aadhaar number" shall have the same meaning as assigned to it in clause (a) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016).

(7) Notwithstanding anything contained in sub-section (6), a non-resident taxable person may be granted registration under sub-section (1) on the basis of such other documents as may be prescribed.

(8) Where a person who is liable to be registered under this Act fails to obtain registration, the proper officer may, without prejudice to any action which may be taken under this Act or under any other law for the time being in force, proceed to register such person in such manner as may be prescribed.

(9) Notwithstanding anything contained in sub-section (1), - -

(a) any specialised agency of the United Nations Organisation or any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), Consulate or Embassy of foreign countries ; and

(b) any other person or class of persons, as may be notified by the Commissioner,

shall be granted a Unique Identity Number in such manner and for such purposes, including refund of taxes on the notified supplies of goods or services or both received by them, as may be prescribed.

(10) The registration or the Unique Identity Number shall be granted or rejected after due verification in such manner and within such period as may be prescribed.

(11) A certificate of registration shall be issued in such form and with effect from such date as may be prescribed.

(12) A registration or a Unique Identity Number shall be deemed to have been granted after the expiry of the period prescribed under sub-section (10), if no deficiency has been communicated to the applicant within that period.

Rule 41. Transfer of credit on sale, merger, amalgamation, lease or transfer of a business, CGST Rules, 2017

"(1) A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee:

Provided that in the case of demerger, the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.

Explanation: For the purpose of this sub-rule, it is hereby clarified that the "value of assets" means the value of the entire assets of the business, whether or not input tax credit has been availed thereon.

(2) The transfer or shall also submit a copy of a certificate issued by a practicing chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.

(3) The transferee shall, on the common portalx, accept the details so furnished by the transfer or and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.

(4) The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account."

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