The Gujarat High Court (Ahmedabad Bench) has held that the transfer of unutilized Input Tax Credit (ITC) under Section 18(3) of the CGST Act, 2017, read with Rule 41 of the CGST Rules, 2017, is permissible between a transferor and a transferee company located in different states, following a scheme of amalgamation approved by the NCLT.
The Court clarified that an administrative or technical restriction on the GST portal, which is not supported by the statute, cannot be used to deny a benefit legally available under the CGST Act. Accordingly, the directed that until a proper mechanism is provided on the GST portal, the respondent department shall accept Form ITC-02 manually and process the transfer of ITC.
The Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi observed that the denial of ITC transfer was based on an endorsement on the GST portal, which stated that the transferee and transferor must be in the same State/U.T. The Bench held that the respondent department cannot incorporate a condition into a statutory form (Form GST ITC-02) that is absent in the statutory provisions themselves.
The Bench found that neither Section 18(3) of the CGST Act nor Rule 41 of the CGST Rules prohibits or debars the transfer of ITC on the ground that the companies are located in different states. Hence, the Bench concluded that the technical inability of the GSTN portal to process such a transaction cannot be a ground to deny a statutory benefit to the petitioner.
Briefly, the petitioner company is engaged in the manufacture and sale of safety valves and components, with GST registrations in multiple states including Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Andhra Pradesh. Through a scheme of amalgamation approved by the National Company Law Tribunal (NCLT), M/s. Pentair Valves and Controls India Pvt Ltd (the transferor company) stands amalgamated into the petitioner company (the transferee company). Consequently, all assets and liabilities, including the unutilized Input Tax Credit (ITC) balance in the transferor’s books, were transferred to the petitioner.
Now, the unutilized ITC primarily pertained to the Central Goods and Service Tax (CGST), which had been carried forward from the earlier Central Excise regime by the transferor company by filing Form GST TRAN 1. When the petitioner attempted to transfer this unutilized ITC by filing Form GST ITC-02 on the GST portal, as required under Section 18(3) of the CGST Act and Rule 41 of the CGST Rules, the portal displayed an error message stating, “Transferee and Transferor should be of the same State”. Despite reminders and meetings with the jurisdictional officer, no resolution was provided.
Appearances:
Advocate Uchit N Sheth, for the Petitioner/ Taxpayer
Advocate Shashvata U Shukla, for the Respondent/ Revenue
