HC allows inter-state ITC transfer in case of amalgamation

This Tax Alert summarizes a recent ruling of the Goa Bench of the Bombay High Court (HC) ^[1] regarding inter-state transfer of unutilized input tax credit (ITC) in cases of amalgamation under Section 18(3) of the Central Goods and Services Tax Act, 2017 (CGST Act).

The key observations of the HC are:

• Goods and Services Tax (GST) is a unified, destination-based tax system designed to eliminate cascading taxes and enable seamless ITC flow across the supply chain.
  
  
• Section 18(3) read with Rule 41 of the Central Goods and Services Tax Rules, 2017 (CGST Rules) allows transfer of unutilized ITC in the event of merger, demerger or amalgamation without any restriction on the geographical location of the transferor and transferee.
  
  
• While Section 22(4) specifically requires the transferee entity to obtain registration from the date on which the Registrar of Companies issues a certificate of incorporation implementing the scheme, no such stipulation has been specified while permitting the transfer of ITC under Section 18(3).
  
  
• Applying established principles of statutory interpretation, courts cannot read into a statute words that are not present, nor can they infer prohibitions where the legislature has chosen to remain silent.
  
  
• Since CGST and IGST are centrally administered, inter-state transfer of these credits does not result in Union’s revenue loss. The petitioner also waived SGST claims, mitigating any potential State-level impact.

In view of the above, HC directed the authorities to effect manual transfer of CGST and IGST credits and advised the GST Council and GSTN to update the system to enable such transfers in future cases.

Comments:

• This ruling serves as a landmark affirmation that statutory entitlements under the CGST Act, including the right to transfer unutilized ITC as outlined in Section 18(3), cannot be undermined by procedural or technical limitations of the GST portal.
  
  
• The judgement may be relied upon in disputes where authorities have denied ITC transfers based on State-specific registration, despite full compliance with procedural requirements under Rule 41. The interpretation establishes a clear precedent for the seamless portability of ITC across state boundaries, in case of change in constitution of business of a person.
  
  
• The issue of SGST credit transfer may still remain unresolved. Taxpayers with significant SGST balances should carefully assess the applicability of the principle laid down to their circumstances, considering the legal uncertainties and lack of a defined mechanism for such transfers.

^[1] Writ Petition No. 463 of 2024