Bombay High Court has urged the GST Council and the GST Network (GSTN) to provide for a regular mechanism for transfer of unutilised Input Tax Credit (ITC) from the electronic credit ledger of a transferor Company to a transferee Company located in another state after merger or amalgamation.
“We permit the IGST (Integrated Goods & Services Tax) and CGST (Central Goods & Services Tax) 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. However, we also request 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 Justices Nivedita P Mehta and Bharati H Dangare said in a recent ruling while allowing the petition filed by Mumbai based Umicore Autocat.
Petitioner challenges ITC transfer blockage across states
The petitioner challenged the action of the Tax Administration in restricting the transfer of the unutilised ITC on account of a merger/amalgamation. It was said that the transfer is prohibited where it involves two distinct States. However, the company claimed that nothing in the GST Act or the GST Rules imposes any such restriction. During the hearings, Counsel for the Tax Department stated that there is no mechanism for transferring the ITC. The Revenue (Tax Department) is justified in not permitting the transfer from the Transferor Company in Goa to the Transferee Company, which is situated in a different State, i.e., Maharashtra.
After hearing all the arguments and examining all the facts, the bench observed that the company, which in the wake of the order of the Tribunal passed amalgamated into the Petitioner-Company and undertook all the liabilities of the Transferee Company and therefore, is entitled to take benefit of ‘ sub-section (3) of Section 18 of the CGST Act, 2017’. This sub-section prescribes the transfer of ITC in special situations such as merger, demerger, amalgamation, etc.
CGST, IGST transfer approved; SGST denied due to state revenue loss
Further, it said that as far as the CGST and IGST are concerned, which are collected and the Central Government claims benefits, whereas under the IGST, the benefits shall be claimed by the Central Government or the State Government and upon the un-utilised ITC being utilised in the State of Maharashtra, the Central Government has nothing to lose. At the same time, the SGST is to be collected by the State, and it will be consumed by the State. Permitting the SGST to be utilised in the State of Maharashtra would result in financial loss to the State of Goa, it said.
As the company stated, it is willing to relinquish its claim for unutilised SGST; the Court permitted the transfer of unutilised CGST and IGST. The bench noted that although the GSTN portal does not allow such transfer, it “can be no ground to deny the benefit to the Petitioner, if it is so entitled in the wake of the statutory scheme,” the bench said.
