The Hon’ble Gujarat High Court in the case of Emerson Process Management (India) Pvt Ltd v. Union of India & Ors. [R/Special Civil Application No. 7006 of 2024, order dated March 5, 2026] held that transfer of Input Tax Credit (ITC) on amalgamation is permissible under Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules, and such transfer cannot be denied merely because the transferor and transferee entities are located in different States.
Facts:
Emerson Process Management (India) Pvt Ltd (“the Petitioner”) is a private limited company engaged in the manufacture and sale of safety valves and components and registered under the GST Acts in several States including Gujarat, Maharashtra, Tamil Nadu, Karnataka and Andhra Pradesh.
Union of India & Ors. (“the Respondents”) are the GST authorities responsible for administering the GST portal and processing statutory filings under the CGST Act and CGST Rules.
The Petitioner amalgamated with Pentair Valves and Controls India Pvt Ltd pursuant to a scheme of amalgamation approved by the National Company Law Tribunal (NCLT) by order dated November 14, 2019, under which all assets and liabilities of the transferor company, including unutilized ITC, were transferred to the Petitioner. The unutilized ITC reflected in the books of the transferor company primarily pertained to CGST credit carried forward from the earlier Central Excise regime through Form GST TRAN-1.
The Petitioner attempted to transfer the ITC by filing Form GST ITC-02 under Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules, but the GST portal rejected the request with the message: “Transferee and Transferor should be of the same State/UT.”
The Petitioner contended that the statute does not prohibit transfer of ITC upon amalgamation merely because the entities are located in different States and that the portal restriction inserted by the authorities has no statutory backing.
The Respondent contended that under the current GST framework the transfer of ITC upon amalgamation is restricted to entities within the same State, and allowing inter-State transfer would create audit challenges and increase the risk of tax evasion. The Respondent also relied upon Circular No. 133/03/2020-GST dated March 23, 2020 relating to apportionment of ITC in cases of business reorganization.
The Petitioner therefore approached the High Court challenging the denial of ITC transfer through Form GST ITC-02 and seeking directions to permit transfer of credit pursuant to the NCLT-approved amalgamation.
Issue:
Whether transfer of unutilized ITC upon amalgamation under Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules can be denied on the ground that the transferor and transferee entities are registered in different States
Held
The Hon’ble Gujarat High Court in R/Special Civil Application No. 7006 of 2024 held as under:
- Observed that, the amalgamation of the transferor company with the petitioner pursuant to the NCLT order dated November 14, 2019 was not disputed and that all assets and liabilities including ITC stood transferred to the petitioner under the scheme.
- Noted that, when the Petitioner attempted to transfer the ITC by filing Form GST ITC-02, the GST portal rejected the request by inserting an endorsement that the transferor and transferee must be located in the same State or Union Territory.
- Observed that, the provisions of Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules permit transfer of ITC upon amalgamation, and neither provision prohibits transfer merely because the transferor and transferee companies are located in different States.
- Observed that, technical limitations of the GST portal cannot be a ground to deny a statutory benefit available under the Act.
- Held that, the remark inserted in Form GST ITC-02 requiring the transferor and transferee to be located in the same State has no basis in the statute and is therefore invalid.
- Directed that, until a proper portal mechanism is developed, the GST authorities shall accept Form GST ITC-02 manually and process the transfer of ITC within six weeks from receipt of the order.
Our Comments:
The judgment in the case of Umicore Autocat India (P) Ltd v. Union of India[ [2025] 176 Taxmann.com 616], the Bombay High Court examined the statutory scheme of Sections 18(3), 22 and 25 of the CGST Act along with Rule 41 of the CGST Rules and held that upon amalgamation approved by the Tribunal under the Companies Act, the transferee company is entitled to transfer of ITC standing in the electronic credit ledger of the transferor company. The Court reasoned that the objective of ITC provisions is to ensure a seamless chain of credit and eliminate cascading of taxes. It further held that technical limitations of the GST portal cannot override statutory entitlements. The Bombay High Court therefore permitted transfer of CGST and IGST credit and directed that such transfer may be effected through physical mode until a technological mechanism is developed on the GST portal.
The Gujarat High Court adopted the same reasoning and held that the GST authorities cannot introduce additional conditions, such as requiring both entities to be located in the same State when such restriction is not found in the statutory provisions. The Court emphasized that administrative or technological limitations cannot override the statutory scheme governing ITC transfer.
Relevant Provisions
Section 18(3) of the Central Goods and Services Tax Act, 2017
“18. Availability of credit in special circumstances.-
Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.”
Rule 41 of the Central Goods and Services Tax Rules, 2017
“41. Transfer of credit on sale, merger, amalgamation, lease or transfer of a business.-
(1) A registered person shall, in the event of sale, merger, de-merger , amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02 , electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee:
Provided that in the case of demerger, the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
Explanation : – For the purpose of this sub-rule, it is hereby clarified that the “value of assets” means the value of the entire assets of the business, whether or not input tax credit has been availed thereon.
(2) The transfer or shall also submit a copy of a certificate issued by a practicing chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.
(3) The transferee shall, on the common portal, accept the details so furnished by the transfer or and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.
(4) The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account.”
Circular No. 133/03/2020-GST dated March 23, 2020
“Sub: Clarification in respect of apportionment of input tax credit (ITC) in cases of business reorganization under section 18 (3) of CGST Act read with rule 41(1) of CGST Rules – reg.
…
2. According to sub-section (3) of section 18 of the CGST Act, “Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.”
Further, according to sub-rule (1) of rule 41 of the CGST Rules:
‘A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, demerger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee:
Provided that in the case of demerger, the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
Explanation:- For the purpose of this sub-rule, it is hereby clarified that the “value of assets” means the value of the entire assets of the business, whether or not input tax credit has been availed thereon.’
…”
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