Input Tax Credit Transfer On Company Amalgamation Not Restricted By State: Gujarat High Court

The Gujarat High Court on 5 March held that input tax credit (ITC) cannot be denied on the amalgamation of companies merely because the transferor and transferee entities are registered in different States.

A Division Bench comprising Justice A. S. Supehia and Justice Pranav Trivedi heard a petition filed by Emerson Process Management (India) Pvt. Ltd. challenging the refusal of GST authorities to allow the transfer of ITC following the amalgamation of Pentair Valves and Controls India Pvt. Ltd., following a scheme approved by the National Company Law Tribunal (NCLT) on 14 November 2019.

The Bench noted:

"Input tax credit (ITC) cannot be denied on the amalgamation of companies merely because the transferor and transferee entities are registered in different States. Any restriction based on the location of the entities is not provided in the statute and cannot be imposed through the portal or statutory form."

Following the merger, the entire business of Pentair India, including its assets and liabilities, was transferred to Emerson India.

Emerson India also sought to transfer the unutilised ITC lying in the electronic credit ledger of Pentair, largely comprising central tax credit carried forward from the earlier excise regime through TRAN-1.

When Emerson India attempted to transfer the credit by filing Form GST ITC-02 on the GST portal, the request was rejected with an automated message stating that the “Transferee and Transferor should be of the same State / U.T.”

Emerson India contended that the statute does not prohibit the transfer of ITC after amalgamation and that the endorsement on Form GST ITC-02 by the GST authorities was illegal, as the authorities cannot introduce conditions absent in the statute. The Union of India opposed the petition, arguing that inter-State transfer could lead to administrative and audit complications.

The Bench rejected the Department's stand, observing that the statutory provisions governing transfer of ITC on business reorganisation do not prohibit such transfer merely because Pentair and Emerson India are located in different States. It stated:

"We find that such incorporation has been made in the statutory form itself without referring to any provisions under which the same is passed. In our considered opinion, the reasons assigned in the statutory form should be separate, clearly demarcating the opinion of the department and shall not be embossed on the statutory form which has been done in the present case."

The Court further noted that the GST portal's technical limitation cannot be a ground to deny a substantive benefit available under law. Remarks on Form GST ITC-02 indicating that both companies must be located in the same State had no statutory basis and could not justify denial of the ITC transfer.

The Bench emphasised the statutory position, stating:

"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 provisions 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 the GST Portal which is absent in the statutory provisions."

The Bench also clarified:

"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."

Accordingly, the Court directed the Department to permit the transfer of ITC through manual filing of Form GST ITC-02 until the GST portal provides an appropriate mechanism for such transfers.

For Petitioner: Advocate, Uchit N Sheth 

For Respondent: Senior Standing Counsel, Shashvata U Shukla