Gujarat High Court Holds Transfer of ITC on Amalgamation Permissible Across States Under Section 18(3) of CGST Act

Background and Context
The petitioner, a private limited company engaged in the manufacture and sale of safety valves, underwent amalgamation with another company pursuant to an order of the National Company Law Tribunal (NCLT). As a result, all assets and liabilities, including unutilized Input Tax Credit (ITC) primarily under the Central Goods and Services Tax Act, 2017 (CGST Act), were transferred to the petitioner. The petitioner attempted to transfer this ITC through the prescribed Form GST ITC-02 on the GST portal but was denied due to an error message stating that both transferor and transferee must be in the same State or Union Territory.

Legal Issue
The central issue before the Gujarat High Court was whether the transfer of unutilized ITC on amalgamation is permissible when the transferor and transferee companies are registered in different states, and whether the GST portal or statutory forms can impose such a restriction in the absence of any statutory prohibition.

Submissions
The petitioner argued that neither Section 18(3) of the CGST Act nor Rule 41 of the CGST Rules prohibits the transfer of ITC across states upon amalgamation. Reliance was placed on the Bombay High Court’s decision in Umicore Autocat India (P) Ltd v. Union of India, which allowed such transfers. The respondents, represented by the Senior Standing Counsel, contended that the GST framework restricts ITC transfers to within the same state and that cross-state transfers would create audit and fraud risks. They also cited a pending challenge to the Bombay High Court’s decision before the Supreme Court.

Court’s Reasoning
The Court noted that the statutory Form ITC-02, as implemented on the GST portal, included an endorsement restricting transfers to entities within the same state, but found no basis for this restriction in the CGST Act or Rules. The Court emphasized that statutory forms should not incorporate requirements or restrictions not expressly provided by law. It observed that the legislative intent behind ITC provisions is to ensure a seamless chain of tax credits and that the law does not distinguish between intra-state and inter-state amalgamations for the purpose of ITC transfer.

The Court referred extensively to the Bombay High Court’s reasoning in Umicore Autocat India (P) Ltd, which held that the transfer of ITC, particularly CGST and IGST, is permissible upon amalgamation, regardless of the states in which the entities are registered. The Gujarat High Court found no convincing reason to depart from this view and held that the respondent department’s action of restricting ITC transfer via the GST portal was contrary to the statutory scheme.

Decision and Directions
The Gujarat High Court allowed the writ petition, holding that the transfer of ITC on amalgamation is permissible under Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules, even when the transferor and transferee are in different states. The Court directed that, until an appropriate mechanism is provided on the GST portal, the department must accept and process Form ITC-02 manually. The petitioner was permitted to submit the form manually, and the department was directed to process it within six weeks.

Conclusion
This decision clarifies that statutory forms and administrative practices cannot override or restrict substantive rights granted by the CGST Act and Rules. The ruling reinforces the principle that, in the absence of a statutory prohibition, ITC transfer on amalgamation is permissible across state lines, and administrative hurdles cannot be used to deny such rights.