Cross-State ITC Transfer Cannot Be Denied on Amalgamation: Gujarat High Court

The Gujarat High Court has held that Input Tax Credit (ITC) cannot be denied on the ground that the transferor and transferee companies are located in different States in a case of amalgamation.

A Bench of Justice A.S. Supehia and Justice Pranav Trivedi held,

"The transfer of the ITC on amalgamation of the company is permissible as per the provision of Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules. Neither of the provision prohibits or debars transfer of the ITC on the ground that the transferee and the transferor company are located in different states. We are of the opinion that the respondent department cannot incorporate something in a statutory form ITC-02 on GST Portal which is absent in the statutory provisions. The remark which is mentioned on the Form GST ITC-02 does not find place in the statute. Neither the statute permits nor debars the transfer of ITC after the scheme of amalgamation has been approved by the NCLT. Such an action of restricting the transfer of ITC on the on-line GST portal is de hors the intention of the provision of Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules.”

The case arose from a writ petition filed by Emerson Process Management (India) Pvt. Ltd., which had amalgamated Pentair Valves and Controls India Pvt. Ltd. pursuant to a scheme approved by the National Company Law Tribunal (NCLT).

The petitioner sought transfer of unutilized ITC from the transferor company by filing Form GST ITC-02 (a statutory form used to transfer unutilised input tax credit in cases of sale, merger, demerger, or amalgamation), but the same was not permitted on the GST portal with an endorsement stating that “Transferee and Transferor should be of the same State / U.T.”

Challenging this, the petitioner contended that neither Section 18(3) of the CGST Act nor Rule 41 of the CGST Rules imposes any such restriction and that a portal-based limitation cannot override statutory provisions. Reliance was also placed on the Bombay High Court's decision in Umicore Autocat India Pvt. Ltd.

On the other hand, the Revenue argued that under the GST provisions, ITC transfer in cases of amalgamation is restricted within the same State and cannot be permitted across States. It was further contended that allowing such transfers could create audit challenges and increase the risk of tax evasion and fraud.

Rejecting the stand of the Revenue, the High Court held that the restriction imposed through the GST portal is not backed by any statutory provision and that such a condition cannot be embedded in Form ITC-02.

The court also followed the view taken by the Bombay High Court in Umicore Autocat India Pvt. Ltd., holding that transfer of ITC upon amalgamation is permissible even where the entities are situated in different States.

It further directed the authorities to accept Form ITC-02 manually and process the transfer within six weeks.

Accordingly, the writ petition was allowed.

For Petitioner: Advocate Uchit N. Sheth

For Respondents: Shashvata U. Shukla, Senior Standing Counsel