In a peculiar circumstance, the Bombay High Court permitted the IGST and CGST amount lying in the electronic credit ledger of the Transferor Company to be transferred to the Petitioner Company by physical mode for the time being, subject to the adjustments to be made in the future. The Court also requested the GST Council as well as the GST Network to provide for mechanism to deal with such contingencies, when the ITC is sought to be transferred from one State to another or from one State to any Union Territory by updating its network to deal with such a situation.
A Division Bench of Justice Bharati Dangre and Justice Nivedita P Mehta was considering a challenge to the action of the Respondents in restricting the transfer of the un-utilized Input Tax Credit [ITC] on account of merger/amalgamation, u/s 18(3) of the CGST Act, 2017 on the ground that the transfer is prohibited where it involves two distinct States. Referring to Section 18(3) along with Rule 41, the Bench clarified this provision does not impose any such restriction while it permits the transfer of unutilized ITC in the electronic ledger to the new entity to which the business was sold, with which it was merged, amalgamated, or transferred.
Had the legislature any intention to cast an embargo or impose a restriction regarding Section 22(4) to the effect that, unless and until the Transferee is registered, ITC cannot be availed, it should have so specified, but sub-section (3) of Section 18 is merely suggestive of allowing the transfer of the un-utilized ITC in the electronic credit ledger of the Transferor to the Transferee, whenever there is change in the constitution of the registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with a specific provision of transfer of liability, added the Bench.
The Bench went on to observe that since the Transferor Company, in the wake of the scheme of amalgamation, is dissolved w.e.f. Apr 01, 2019 and the Petitioner Company has undertaken the liabilities of the Company, it definitely, in the wake of sub-section (3) of Section 18 is entitled to enjoy un-utilized ITC in the electronic ledger of the Transferor Company irrespective of the boundaries of the two Companies, the Transferor Company being registered under the GST regime in the State of Goa and the Transferee Company i.e. the Petitioner Company being registered under the GST in Satara, Maharashtra.
In this case, when the Transferor Company attempted to file GST ITC-02 on the GSTN portal to transfer the entire ITC from the Transferor Company to the Petitioner, the same was rejected with an error message “Transferee and Transferor should be of the same State/UT”. When the Transferor Company approached the State Tax Officer, he responded that they do not have the option or feature in their system to resolve the technical issues in the GSTN portal. Amazed by this, the Petitioner submitted that the procedure set out for transfer of credit on sale, merger, amalgamation, lease or transfer of business under Rule 41 of the CGST Rules, does not restrict the ITC, which is permitted to be transferred as projected by the Petitioner to a new entity, which has come into existence on amalgamation just because it is located in different State. This was opposed by the Customs Department, contending that if the ITC has been earned in a particular State, then it must be utilized only in that State, and its benefit cannot be extended in a State where it did not originate. The Department therefore denied the transfer of ITC from the Transferor Company in Goa to the Transferee Company situated in Maharashtra.
When the matter reached the High Court, it was found that the difficulty that is sought to be projected for not giving effect to sub-section (3) of Section 18 on the part of the Respondents-Authorities is that the GSTN portal does not allow such transfer. Speaking for the Bench, Justice Bharti Dangre analysed the provision and explained that this cannot be a ground to deny the benefit to the Petitioner, if it is so entitled in the wake of the statutory scheme.
Appearances:
Advocates Avinash Poddar and Vibhav Amonkar, for the Petitioners
Advocates Asha Desai, Devidas J Pangam, and Shubham Priolkar, for the Respondents
