Bombay High Court Directs GST Council To Develop Mechanism For Cross-State ITC Transfer In Mergers/Amalgamations

Justices Bharati Dangre and Nivedita P. Mehta 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 future.

The petitioner/Umicore Autocat India Private Limited has raised a challenge to the action of the department/respondent in restricting the transfer of the un-utilized Input Tax Credit on account of merger/amalgamation, under Section 18(3) of the Central Goods and Services Tax Act, 2017 on the ground that the transfer is prohibited where it involves two distinct States.

In this case, the assessee had shut down its factory in Ambattur, Chennai in Tamil Nadu and shifted it to Sri City, Andhra Pradesh in June 2016, much prior to implementation of GST and at that point of time, the assessee had accumulated the ITC under the Cenvat Credit Rules, 2004, which had retained un-utilized ITC, owing to the fact that the assessee was predominantly engaged in exporting final products.

The assessee orally requested the Judicial Assistant Commissioner of Central Excise to permit the transfer of accumulated ITC lying un-utilized in its Cenvat Account to its new factory in Sri City, Andhra Pradesh in terms of Rule 10 of the Cenvat Credit Rules, 2004.

The assessee referred to Rule 41 of CGST Rules 2017 which has set out the procedure for transfer of credit on sale, merger, amalgamation, lease or transfer of business, and submitted that the section imposes no restriction on the ITC, which is permitted to be transferred as projected by the assessee to a new entity, which has come into existence on amalgamation just because it is located in different State.

The department contended that Section 16 of the CGST Act, 2017 has determined the eligibility and conditions for awaiting the ITC and according to him, this benefit is available to every registered person, who is entitled to take credit of input tax filed, charged on supply of goods or services or both, which are used or intended to be used in the course of furtherance of his business and such amount shall be credited to the electronic credit ledger of such a person.

The bench after looking into sub-section (3) of Section 18 of the CGST Act along with Rule 41, observed that the section does not impose any such restriction while it permits the transfer of un-utilized ITC in the electronic ledger to the new entity to which the business was sold, with which it was merged, amalgamated or transferred.

“We do not find that the boundaries of the State would create any impediment as the Transferor Company has ceased to function and operate from 01.04.2019 and all its liabilities along with the ITC must go to the Transferee Company”, opined the bench.

The bench further 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.

Case Title: Umicore Autocat India Private Limited v. Union of India

Case Number: WRIT PETITION NO. 463 of 2024

Counsel for Petitioner/Assessee: Avinash Poddar with Vibhav Amonkar

Counsel for Respondent/Department: Asha Desai

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