Summary:

The key issue before the Bombay High Court was whether ITC lying in the electronic credit ledger of a company registered in one State can be transferred to a company registered in another State pursuant to a scheme of amalgamation. The Court held that such inter-State ITC transfers are permissible under the GST Law, and that technical limitations of the GST portal cannot override statutory rights of taxpayers.

Facts:

• The Petitioner is a private limited company situated and registered in Maharashtra under the GST Law and was formed after an amalgamation of a Transferor company registered in Goa
• At the time of amalgamation, the Transferor company had accumulated ITC balance in their electronic credit ledger under IGST, CGST and SGST head
• The Transferor company tried to file the prescribe form i.e., ITC-02 to transfer the entire ITC to the Petitioner. However, the same was rejected with an error message “Transferee and Transferor should be of the same State/UT”
• The Transferor company raised query on the GST portal and represented before the State tax authority, however received a reply that they don’t have such option in their system to resolve the said technical issue on the GST portal
• With no resolution being provided, the Petitioner filed a Writ Petition before the High Court challenging the actions in restricting the transfer of unutilised ITC

Issues before the High Court:

• Whether unutilized ITC can be transferred from one State to another during an amalgamation under Section 18(3) of the Central Goods and Services Tax Act, 2017 (‘the CGST Act’) and rule 41 of the Central Goods and Services Tax Rules, 2017 (‘the CGST Rules’) despite technical restrictions on the GST portal?

Discussion and Ruling:

The Hon’ble Bombay High Court allowed the Writ Petition on the following basis:
 

• The Section 18(3) of the CGST Act allows a registered person to transfer unutilized ITC in its electronic credit ledger in cases of change in constitution due to sale, merger, demerger, amalgamation, etc., where there is a specific provision for transfer of liabilities
• The statute does not impose any geographical restriction that the transferor and transferee must be registered in the same State or Union Territory. Rule 41 only prescribes the procedure and does not limit the applicability by location
• Merely because entities registered in different States are treated as “distinct persons” under Section 25 does not mean that ITC transfer on an amalgamation is prohibited. The Court reaffirmed the principle that Courts cannot read into the statute a condition which the legislature has consciously omitted
• The technical inability of the GSTN portal to facilitate such a transaction cannot be a ground to deny a statutory right to the taxpayer. The portal must be configured to implement the law, not the other way around
• Since the exchequer does not suffer any revenue loss from the transfer of IGST and CGST, and the Petitioner has voluntarily forgone the claim for the SGST component, the transfer of ITC must be allowed
• Accordingly, the Hon’ble Court directed the Respondents to permit transfer of IGST and CGST lying in the electronic credit ledger of the Transferor company to the Petitioner through manual mode for the time being
• Further, the Court has also requested the GST Council and the GSTN to develop a mechanism to facilitate such inter-State transfers of ITC in cases of amalgamation, merger, etc., to avoid such issues in the future