Bombay HC Permits Inter-State GST ITC Transfer on Post-Amalgamation, Orders GST Council and GSTN to Create Mechanism [Read Order]

The decision by Justices Bharati Dangre and Nivedita P. Mehta not only allowed the transfer of credit under Section 18(3) of the Central Goods and Services Tax (CGST) Act, 2017, but also directed the Goods and Services Tax Network (GSTN) and the GST Council to develop an appropriate mechanism for such contingencies, where ITC needs to be transferred across state jurisdictions.

Umicore Autocat India Private Limited, the petitioner, which had merged with Umicore Anandeya India Private Limited, a company previously registered under GST in Goa. While the amalgamation scheme was duly approved by the National CompanyLaw Tribunal (NCLT) with effect from 01.04.2019, the GSTN portal denied the petitioner the ability to transfer the unutilized ITC due to a technical restriction that both transferor and transferee must be registered in the same State or Union Territory.

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The petitioner company made an attempt to file the prescribed form, GST ITC-02 on the GSTN portal to transfer the entire ITC from the Transferor Company to the Petitioner. However, the same was rejected with an error message “Transferee and Transferor should be of the same State/UT”, which triggered to bring up the issue before the court.

Mr. Avinash Poddar, argued that Section 18(3) of the CGST Act, read with Rule 41 of the CGST Rules, clearly permits the transfer of unutilized ITC in cases of amalgamation, merger, or other business reorganizations. He submitted that the law does not restrict such transfers merely because the transferor and transferee companies are registered in different States.

The Advocate General, strongly opposed the reliefs sought by the petitioner for transferring Input Tax Credit (ITC) across State boundaries post-amalgamation. He argued that Section 16 of the CGST Act, 2017 governs the eligibility conditions for availing ITC and allows only a “registered person” to take credit of input tax charged on goods or services used in the course of business, with the credit being reflected in their electronic credit ledger.

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The Advocate General contended that Section 18(3) of the CGST Act, which provides for ITC transfer upon amalgamation or merger, must be read in line with this scheme. He argued that since GST treats each State registration as a distinct person, the law restricts ITC transfers between entities in different States. For example, ITC can be transferred between two units in Maharashtra (e.g., Pune and Solapur), but not between units in different States like Maharashtra and Goa.

He further interpreted Rule 41 of the CGST Rules to support this view, stating that it envisages ITC transfer only within the same State or Union Territory. He insisted that ITC earned in one State must be used within that State alone and cannot be carried over to another State where it did not originate. To substantiate his argument, he relied on the Madras High Court decision in MMD Heavy Machinery (India) Pvt. Ltd. v. Assistant Commissioner, Chennai, where the Court held that ITC cannot be availed in a different State from where it was accrued.

Additionally, Ms. Asha Desai, appearing for the State of Goa, argued that the State should not suffer revenue loss due to such cross-State transfers. She submitted the absence of any existing mechanism to facilitate inter-State ITC transfers and contended that the Revenue authorities were justified in disallowing the ITC transfer from the Goa-based transferor to the Maharashtra-based transferee entity.

The High Court held that neither Section 18(3) of the CGST Act nor Rule 41 of the CGST Rules, 2017, imposes a restriction on inter-state transfer of ITC following amalgamation.

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It rejected the contention of the authorities that GST Act treats State-wise registrations as distinct persons, stating that the benefit of unutilized ITC must be available to the transferee entity when all liabilities and obligations are carried over post-merger.

The Court noted that the absence of functionality on the GST portal or the software’s “business logic” cannot override statutory rights conferred by the GST Act. It observed that software should be configured to facilitate compliance, not hinder it. Thus, it directed the GST Council and the GSTN to create a mechanism that enables cross-state transfer of ITC in cases of amalgamation, merger, or other reorganizations.

Further, the bench clarified that although the petitioner sought to transfer ITC comprising IGST, CGST, and SGST components, it voluntarily waived the claim to SGST (which is State-specific) to avoid revenue loss to the State of Goa.

Accordingly, the Court allowed the transfer of IGST (₹3,69,586) and CGST (₹3,52,84,105) to the petitioner’s electronic credit ledger and permitted the authorities to carry out the transfer manually (physically) until the GSTN is updated to handle such scenarios.

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