After Amalgamation, Transferor Company Cannot Partially Transfer GST ITC & Seek Refund of Balance: Gujarat HC [Read Order]

In a recent ruling, the Gujarat High Court held that after amalgamation, a transferor company cannot transfer only part of its unutilised Input Tax Credit (ITC) to the transferee company and then claim refund of the remaining credit.

The case started after three companies Alstom Rail Transportation India Pvt. Ltd. (ARTIPL), Alstom Manufacturing India Pvt. Ltd., and Alstom System India Pvt. Ltd. were amalgamated into Alstom Transport India Ltd. through an order of the National Company Law Tribunal dated 10 August 2023. The certified copy of the order was filed with the Registrar of Companies on 22 September 2023, which became the effective date of the amalgamation.

Before the amalgamation, ARTIPL had exported goods in April 2023. Later, it filed an application seeking refund of unutilised ITC under Section 16 of the IGST Act read with Section 54(3) of the CGST Act. Around the same time, ARTIPL filed Form GST ITC-02 to transfer part of its unutilised ITC of about Rs. 192.87 crore to the transferee company.

Out of total unutilised ITC of around ₹242.02 crore, about Rs. 49.14 crore remained in its electronic credit ledger. Refund applications were then filed for this remaining amount.

The refund was first sanctioned by the department through an order dated 28 February 2024. Later, the department reviewed the order and filed an appeal. The appellate authority set aside the refund order, which led the petitioner to approach the High Court.

The petitioner argued that Section 18(3) of the CGST Act and Rule 41 of the CGST Rules only allow transfer of unutilised ITC but they do not require transfer of the entire credit. It was argued that the law does not say that the whole ITC must be transferred during amalgamation.

The petitioner also argued that exports were done before the amalgamation when ARTIPL was still a registered person. Because of this, the right to claim refund of unutilised ITC had already arisen and should not be denied later.

On the other hand, the revenue argued that in cases of amalgamation the unutilised ITC can only be transferred to the transferee company through Form GST ITC-02. It was argued that the law does not allow a company to transfer part of the credit and claim refund of the balance.

The division bench of Justice A.S. Supehia and Justice Pranav Trivedi observed that refund of tax is a statutory right and it must be claimed strictly according to the law. The court explained that when amalgamation happens, the prescribed method for dealing with unutilised ITC is transferred through Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules.

The court observed that ARTIPL transferred only a large part of the credit and then tried to claim a refund of the remaining amount after the amalgamation. The bench explained that the statutory framework does not allow such action.

The court also pointed out that after amalgamation the transferor company stops existing as a separate entity. Because of this, the only legal method for transferring the unutilised ITC is through Form GST ITC-02 to the transferee company.

The bench further observed that the petitioner could have transferred the entire unutilised ITC to the transferee company through the proper process and then used it according to law. But keeping some credit and claiming refund separately was not permitted under the GST system.

The court also pointed out that both the companies and the jurisdictional officers did not properly follow the statutory provisions regarding GST registration and cancellation during amalgamation which created procedural issues.

Considering these facts and the statutory scheme, the High Court refused to interfere with the appellate order that had cancelled the refund. The writ petitions were dismissed.

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