• Dated 13^th August, 2025

No embargo on transferring un-utilized ITC between amalgamating companies located in distinct States

Brief Facts:

The legal dispute originated from the proposed amalgamation of Umicore Anandeya India Private Limited (the Transferor Company), situated in Goa, with Umicore Autocat India Private Limited (the Transferee Company), based in Maharashtra, both integral entities within the Umicore Group. This scheme of amalgamation received judicial imprimatur from the NCLT on May 26, 2020, retrospectively effective from April 1, 2019, culminating in the dissolution of the Transferor Company. Despite the Transferor Company possessing un-utilized ITC recorded in its electronic credit ledger, attempts to facilitate the transfer of this credit to the Transferee Company via the GSTN portal were unequivocally rejected. The portal's denial was predicated on the explicit rationale: "Transferee and Transferor should be of the same State/UT." This perceived technical impediment, confirmed as a "business logic" constraint by the GSTN portal and unaddressed by the State Tax Officer, compelled Umicore Autocat India Private Limited to seek judicial recourse through a Writ Petition.

Assessee Contention:

Umicore Autocat India Private Limited maintained that the provisions of Section 18(3) of the CGST Act, 2017, and its implementing regulation, Rule 41 of the CGST Rules, 2017, were devoid of any explicit statutory prohibition concerning the inter-state transference of unutilized Input Tax Credit (ITC) between separate legal entities. Their proposition was predicated on the understanding that, consequent to the Transferor Company's dissolution, its entire spectrum of residual liabilities, including the unutilized ITC, was rightfully transferable to the Transferee Company. They posited that jurisdictional state boundaries should not constitute an impediment to this warranted transition.

Department Contention:

The Revenue, representing the governmental interests, asserted a fundamental principle: that ITC accrued within the jurisdictional confines of a particular state must, by its very nature, be exclusively utilized within that same State. They contended that the GSTN portal's inherent inability to facilitate such inter-state transfers was congruent with the overarching statutory framework of the GST regime, wherein each registered entity is meticulously delineated as a distinct taxable person for GST purposes, necessitating separate registration within each state or UT. They further submitted that Section 18(3) ought to be interpreted in harmonious alignment with this fundamental schema, thereby implying an intrinsic limitation on inter-state ITC transfers in the context of corporate amalgamations. As a pragmatic alternative, they proposed that the Transferee Company should undertake the formality of obtaining registration within the Transferor's state to effectuate the filing of GST ITC-02.

Decision:

Bombay High Court, in its pronouncement, rendered a decisive judgment in favor of the Petitioner. The Court unequivocally held that Section 18(3) of the CGST Act imposes no such restrictive conditions on the transfer of un-utilized ITC to a successor entity emerging from a sale, merger, amalgamation, or other form of transfer, even when such entities are geographically situated in different States. The bench emphatically articulated that "the boundaries of the State would not create any impediment as the Transferor Company has ceased to function...and all its liabilities along with the ITC must go to the Transferee Company." Furthermore, the Court clarified that the CGST Act contains no embargo mandating the Transferee to secure registration in the Transferor's state for the purpose of filing GST ITC-02. It also affirmed that the Union of India would not incur any fiscal detriment from such a transfer, advocating for the seamless availability of CGST credit irrespective of whether the supply is intra-state or inter-state. Crucially, recognizing the existing technical lacunae, the High Court enjoined the GST Council and GST Network to expeditiously enhance their systems to accommodate and facilitate such essential inter-state ITC transfers. Consequently, the Court granted permission for the transfer of IGST and CGST amounts from the electronic credit ledger of the Transferor Company to the Transferee Company.

Bta Comment:

This pronouncement furnishes indispensable clarity regarding the interpretation of Section 18(3) of the CGST Act, unequivocally affirming that geographical distinctions between States ought not to serve as an impediment to the seamless transfer of un-utilized Input Tax Credit (ITC) in amalgamation scenarios. The judiciary's pronouncement emphasis on the substantive intent embedded within the legislation, rather than a rigid adherence to technical portal limitations, is profoundly significant. It powerfully underscores the principle that the foundational legal provisions must inherently take precedence over mere procedural or system-based constraints. This judicious decision not only substantially ameliorates the compliance burden for multi-state enterprises but concurrently establishes a robust legal precedent, thereby necessitating a comprehensive re-evaluation and recalibration of extant GSTN functionalities to ensure their harmonious alignment with judicial directives. Ultimately, it reinforces the imperative for the tax administration to proactively adapt its operational mechanisms to facilitate, rather than encumber, legitimate business transformations, thereby fostering an environment conducive to heightened certainty and enhanced efficiency within the overarching GST ecosystem.

Case ref-Umicore Autocat India Private Limited vs UOI & ors [TS-639-HC(BOM)-2025-GST

Author: Aindrila Ghosh

Edited by: Shaily Gupta