2025 (9) TMI 1054 - AAR - GST

AAR allows transfer of CGST and IGST input credit on merger under Section 18(3) CGST and Rule 41(1) CGST

In Re: M/s. Flytxt Mobile Solutions Private Limited

AAR held the applicant eligible to transfer the closing input tax credit balance appearing in the electronic credit ledger of the Haryana GSTIN of the ... Eligibility to transfer closing input tax credit balance appearing in the electronic credit ledger of the Haryana GSTIN of M/s Mventus Solutions Private Limited (transferee company) to the applicant's (transferor company) Kerala GSTIN - HELD THAT:- The provisions of law does not put any embargo on transfer of ITC when a registered person is subject to change in constitution on account of sale, merger, amalgamation etc. Therefore, it is opined that the applicant is eligible to transfer closing input tax credit balance appearing in the electronic credit ledger of the Haryana GSTIN of M/s Mventus Solutions Private Limited (transferee company) to the applicant's (transferor company) Kerala GSTIN. It is also found that the ITC proposed to be transferred includes only CGST and IGST and no SGST is involved. Since Haryana State SGST cannot be utilised to pay Kerala State SGST, there would have been technical issues that had the applicant applied for transfer of Haryana State GST by way of filing Form GST-ITC-02. However, in view of the provisions of Section 18 (3) of the CGST Act, 2017 and Rule 41 (1) of the CGST Rules, 2017 read with corresponding provisions of Kerala State GST Act and Rules, we find that there is nothing which forbids the transfer of IGST and CGST on merger of one taxpayer 'with the other, even if the two GSTINs are not within the same state. ISSUES PRESENTED AND CONSIDERED 1. Whether, on merger of one registered person into another, the transferee/merged entity is entitled to transfer the unutilised balance of input tax credit (ITC) appearing in the electronic credit ledger of the transferor's GSTIN located in a different State/UT to the transferee's GSTIN under Section 18(3) of the CGST Act, 2017 read with Rule 41(1) of the CGST Rules, 2017 and corresponding State provisions. 2. Whether any statutory or procedural prohibition arises from the fact that the transferor and transferee GSTINs are in different States, specifically in relation to CGST, IGST and SGST balances, that would prevent interstate transfer of ITC on account of merger. 3. Whether the proposed practical method suggested by the applicant (avail credit in transferee GSTR-3B and simultaneously reverse in transferor using DRC-03) is a permissible procedure for effecting the transfer, and what the appropriate remedy is for technical portal restrictions. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to transfer unutilised ITC on merger (interstate GSTINs) Legal framework: Section 18(3), CGST Act, 2017 permits transfer of unutilised input tax credit where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of business, 'in such manner as may be prescribed.' Rule 41(1), CGST Rules, 2017 prescribes furnishing of FORM GST ITC-02 on the common portal to request transfer of unutilised ITC to the transferee. Precedent treatment: The applicant referred to an advance ruling by another State authority (Andhra Pradesh AAR) which allowed interstate transfer of unutilised ITC on merger; this decision was considered for consistency but not treated as binding precedent. Interpretation and reasoning: The statutory language of Section 18(3) and Rule 41(1) contains no express restriction that the transferor and transferee must have GSTINs within the same State/UT. The rules prescribe manner (ITC-02) but do not incorporate a substantive bar to interstate transfer. The Authority reasoned that the statutory scheme contemplates transfer of credits on change of constitution irrespective of the State locations of the GSTINs, particularly where the credits comprise CGST and IGST. The fact that SGST balances raise utilisation constraints does not create a statutory embargo on transfer per se. Ratio vs. Obiter: Ratio - The Authority concluded as a matter of statutory interpretation that Section 18(3) and Rule 41(1) permit transfer of unutilised CGST and IGST balances on merger, even where the transferor and transferee GSTINs are in different States. Obiter - Observations about practical difficulties arising from SGST balances and cross-state utilisation constraints are explanatory but not central to the legal holding. Conclusion: The transferee is eligible to transfer the closing balance of CGST and IGST appearing in the electronic credit ledger of the transferor's out-of-State GSTIN to the transferee's GSTIN on merger, under Section 18(3) read with Rule 41(1) and corresponding State law. Issue 2: Effect of differing GST components (CGST/IGST/SGST) and interstate restriction Legal framework: Principles of utilisation of GST credits distinguish between IGST, CGST and SGST; by law, SGST of one State is not usable to discharge SGST liability of another State. Section 18(3) and Rule 41(1) govern transferability but do not alter basic credit utilisation rules. Precedent treatment: No binding judicial precedent was cited that limits transfer under Section 18(3) to intra-State transfers; the Authority treated the Andhra Pradesh AAR decision as persuasive consistency with this interpretation. Interpretation and reasoning: Where the closing ITC comprises only CGST and IGST, there is no technical legal impediment in transferring such credits on merger even if the GSTINs are in different States. The Authority noted that had SGST credits been involved, technical and substantive constraints on utilisation across States would arise, but such constraints do not prevent the statutory right of transfer insofar as CGST and IGST are concerned. The distinction between types of tax components explains potential technical issues but does not negate the transfer entitlement under the statutory scheme. Ratio vs. Obiter: Ratio - Transfer of CGST and IGST balances on merger across State GSTINs is permitted; Obiter - Discussion of SGST-specific constraints and their practical consequences for utilisation is advisory and not dispositive in the facts where only CGST and IGST were involved. Conclusion: No statutory prohibition exists on transferring CGST and IGST balances on merger between entities with GSTINs in different States; SGST involvement would raise separate utilisation issues but did not arise on the facts considered. Issue 3: Permissibility of the applicant's proposed procedural workaround and remedy for portal restrictions Legal framework: Rule 41(1) prescribes FORM GST ITC-02 on the common portal as the procedural mode for transfer of unutilised ITC on change of constitution. Tax administration also contemplates mechanisms for reversal and adjustment (e.g., DRC-03) but procedural compliance must support substantive entitlement and maintain audit trail. Precedent treatment: No contrary administrative rule or precedent was cited that validates the simultaneous avail-and-reverse procedure proposed by the applicant as proper practice for transfer; the Authority evaluated procedural correctness on general administrative and evidentiary principles. Interpretation and reasoning: The Authority found the applicant's suggested method - availing credit in the transferee's GSTR-3B and simultaneously reversing in the transferor via DRC-03 - to be procedurally incorrect and likely to render the credit unsupported, risking denial. The Authority attributed the need for such a workaround to technical limitations of the common portal but emphasized that a substantive right cannot be vindicated by procedurally improper steps that may compromise documentary support and compliance. Consequently, the correct course is to effect transfer in the manner prescribed (ITC-02) and to seek resolution of technical portal restrictions with the appropriate jurisdictional authority to enable the prescribed process. Ratio vs. Obiter: Ratio - Administrative/portal limitations do not validate procedural shortcuts that bypass the prescribed FORM ITC-02 mechanism; taxpayers should approach jurisdictional authorities to rectify technical issues. Obiter - Remarks about the likelihood of denial and unsupported credits are cautionary guidance. Conclusion: The applicant's proposed simultaneous avail-and-reverse procedure is procedurally impermissible and risky; the applicant should pursue resolution of portal/technical issues with the competent jurisdictional authority and follow FORM GST ITC-02 for transfer. Cross-references and final operative conclusion 1. The Authority considered the statutory provisions (Section 18(3) and Rule 41(1)), the corresponding State provisions, and a prior AAR on similar facts and concluded consistently that transfer of unutilised CGST and IGST balances on merger is permitted even where GSTINs are in different States. 2. The operative ruling affirmed the applicant's substantive entitlement to transfer the closing CGST and IGST balances from the transferor's out-of-State GSTIN to the transferee's GSTIN on merger, but directed that procedural/formal transfer be effected via prescribed mechanisms and that technical portal issues be addressed with the appropriate authorities rather than by ad hoc transactions that may render credits unsupported.