In a case raising important questions about the transferability of unutilized Input Tax Credit (ITC) following inter-State amalgamation, the Bombay High Court at Goa examined whether the GSTN portal’s technical limitation, requiring same-State registration, could lawfully restrict a statutory right under Section 18(3) of the CGST Act, 2017. At the heart of the dispute was a claimed entitlement to CGST and IGST credit arising from a merger approved by the NCLT, and whether administrative constraints can override legislative intent. Read on to see how the Court approached this challenge at the intersection of tax law, statutory interpretation, and digital implementation.
Brief facts:
The case arose from the amalgamation of Umicore Anandeya India Private Limited (the Transferor Company), registered in Goa, with Umicore Autocat India Private Limited (the Transferee Company and the Petitioner), registered in Maharashtra, under a scheme of merger sanctioned by the National Company Law Tribunal (NCLT), Mumbai. The Transferor Company, which had remained non-operational for three years, was dissolved without winding up, and the Petitioner assumed its liabilities. Under Section 18(3) of the Central Goods and Services Tax Act, 2017 (CGST Act) read with Rule 41 of the CGST Rules, 2017, the Petitioner sought to transfer the unutilized Input Tax Credit (ITC) of the Transferor Company, amounting to ₹3,57,35,305 comprising CGST, SGST, and IGST, from its electronic credit ledger. However, the Goods and Services Tax Network (GSTN) rejected the transfer request, displaying an error message stating that both entities must be registered in the same State or Union Territory. The Petitioner challenged the restriction on the ground that neither Section 18(3) of the CGST Act nor Rule 41 of the CGST Rules imposes any condition requiring both entities to be registered in the same State or Union Territory, leading to the filing of a writ petition before the High Court of Bombay at Goa.
Contentions of the Petitioner:
The Petitioner contended that Section 18(3) of the CGST Act, 2017, permits the transfer of unutilized Input Tax Credit (ITC) in cases of amalgamation without imposing any restriction based on the registration of the entities in different States. It was argued that Rule 41 of the CGST Rules, 2017, merely lays down the procedural requirements for such transfer and does not incorporate any State-specific condition, rendering the GSTN's error message without statutory authority. The Petitioner also distinguished the decision in MMD Heavy Machinery (India) Pvt. Ltd. v. Assistant Commissioner, Chennai & Ors., asserting that it pertained to unit relocation and involved Cenvat Credit under the earlier regime, not ITC under the CGST Act. Emphasizing the objective of the GST regime to facilitate seamless credit flow and prevent tax cascading, the Petitioner maintained that inter-State ITC transfer in cases of amalgamation must be allowed.
Contentions of the Respondent:
The Respondents argued that under Section 16 of the CGST Act, 2017, ITC is available only to registered persons within a State, and Section 25(4) treats registrations in different States as distinct persons. They maintained that inter-State ITC transfer is restricted, citing the design of the GSTN portal and Circular, which requires both the Transferor and Transferee to be registered in the same State for filing Form GST ITC-02. Relying on the Madras High Court’s ruling in MMD Heavy Machinery (India) Pvt. Ltd. v. Assistant Commissioner, Chennai & Ors., the Advocate General asserted that the restriction is legally supported. The Revenue further contended that permitting the transfer of SGST to Maharashtra would result in revenue loss to the State of Goa, as SGST is a State-level levy.
Observation of the Court:
The Court meticulously examined the provisions of the CGST Act, 2017, and the principles underlying the GST regime. The Court noted that the Petitioner, formed post-amalgamation, sought to transfer unutilized ITC from the Transferor Company, which was denied due to a GSTN portal restriction requiring both entities to be registered in the same State. The Court observed that “a careful reading of sub-section (3) of Section 18 along with Rule 41, however, does not impose any such restriction while it permit the transfer of un-utilized ITC in the electronic ledger to the new entity to which the business was sold, with which it was merged, amalgamated or transferred.” The Court emphasized that Section 18(3) of the CGST Act, 2017 permits ITC transfer in cases of amalgamation without geographical limitations, and Rule 41 outlines the procedure without mandating same-State registration.
The Court rejected the Respondents’ reliance on the MMD Heavy Machinery (India) Pvt. Ltd. v. Assistant Commissioner, Chennai & Ors., stating, “The aforesaid decision is completely distinguishable on facts as the transfer of the credit was sought from the unit of the Petitioner, which was completely shut down,” unlike the present case involving an NCLT-approved amalgamation. The Court clarified that the GST regime, designed to eliminate tax cascading, allows seamless ITC flow, including inter-State transfers, as “the intention of the law makers in bringing the legislation and providing ITC was with a specific object i.e. to provide a continuous chain of set off from original producers’ point and the service providers’ point up to the retailers’ level and thus eliminate the burden of tax cascading.”
Addressing the Respondents’ technical objection regarding the GSTN portal, the Court held, “This, according to us, can be no ground to deny the benefit to the Petitioner, if it is so entitled in the wake of the statutory scheme.” The Court also considered statutory interpretation principles, citing Crawford v. Spooner and stated, “We cannot aid the Legislature’s defective phrasing of an Act, we cannot add or mend and, by construction make up deficiencies which are left there.” It concluded that reading a same-State restriction into Section 18(3) of the CGST Act, 2017, would amount to judicial overreach, as no such limitation exists in the statute.
Further, the Court noted the Petitioner’s concession to forgo the SGST claim of Rs. 1,39,25,605 to avoid financial loss to Goa. However, for CGST and IGST, amounting to Rs. 3,62,84,105, the Court found no loss to the Central Government, as these taxes are centrally administered. The Court emphasised the GST’s destination-based tax structure, ensuring no revenue loss for inter-State ITC utilization.
The decision of the Court:
In light of the foregoing discussion, the Court partly allowed the writ petition. It directed that the unutilized CGST and IGST, amounting to ₹3,62,84,105, be transferred from the electronic credit ledger of the Transferor Company to that of the Petitioner, to be effected temporarily through physical mode, subject to future reconciliation or adjustments. The Court declined to allow the transfer of SGST credit of ₹1,39,25,605, as the same was expressly conceded by the Petitioner. Additionally, the Court urged the GST Council and the Goods and Services Tax Network (GSTN) to resolve the technical limitations of the portal to bring it in conformity with the statutory provisions of the CGST Act, 2017.
Case Title: Umicore Autocat India Private Limited Vs. Union of India and Ors.
Case No.: Writ Petition NO. 463 of 2024
Coram: Justice Nivedita P. Mehta, Justice Bharati H. Dangre
Advocate for Petitioner: Advs. Avinash Poddar and Vibhav Amonkar
Advocate for Respondent: Advs. Asha Desai, Devidas J. Pangam and AGA Shubham Priolkar
