Refund of unutilised input tax credit on amalgamation: formal ITC transfer requirements enforced, relief denied due to procedural irregularities.

Entitlement to refund of unutilised input tax credit on amalgamation is governed by the statutory scheme treating pre-order companies as distinct until the sanctioning order and cancelling registrations from the date of that order; therefore transfer of unutilised ITC must be effected via FORM GST ITC-02 with valid GSTINs and within applicable statutory timelines, failing which complications arise. Partial transfer of ITC does not permit downstream refund or encashment if statutory formalities and liabilities were not settled by the transferor. The doctrine of pari delicto bars relief where both transferor and officers acted irregularly. Revenue is directed to issue instructions to ensure compliance in future amalgamations.

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Issues: (i) Whether the transferee (ATIL) is entitled to claim refund of unutilised input tax credit remaining in the transferor's (ARTIPL) electronic credit ledger where ARTIPL transferred only part of the ITC by FORM GST ITC-02 and thereafter filed refund applications; (ii) Whether the registrations and cancellations of ARTIPL and ATIL, and the conduct of the revenue officers in relation to registration/cancellation on amalgamation, affect the entitlement to refund.

Issue (i): Whether the transferee may encash unutilised ITC left in the transferor's ledger after partial transfer via FORM GST ITC-02 by claiming refund under Section 54(3) of the CGST Act, 2017.

Analysis: The statutory framework requires transfer of unutilised ITC on amalgamation by the mechanism prescribed in Section 18(3) of the CGST Act, 2017 and Rule 41 of the CGST Rules, 2017, using FORM GST ITC-02 with acceptance by the transferee. Refund of unutilised ITC under Section 54(3) is a statutory prescription and must be construed strictly. The enabling transfer mechanism cannot be used in a manner that subverts the statutory scheme by permitting a transferor to retain part of the unutilised ITC in its ledger and then seek refund contrary to the transfer/registration scheme for amalgamation. The factual sequence (partial ITC transfer by FORM ITC-02, subsequent refund application by the transferor, and cancellation/registration timelines) demonstrates non-compliance with the statutory scheme and resulted in an outcome inconsistent with the statutory transfer mechanism.

Conclusion: Issue (i) decided against the transferee. The transferee is not entitled to the refund claimed because the statutory transfer and refund scheme was not complied with and the partial-transfer-then-refund route is not permissible in the statutory framework.

Issue (ii): Whether irregularities in registration of the transferee, cancellation of the transferor's registration, and actions/omissions of revenue officers in relation to registration/cancellation on amalgamation entitle the transferee to relief.

Analysis: The statutory provisions governing registration on amalgamation (Section 22(4), Section 25, Rule 20) and cancellation (Section 29, Rule 22) impose specific procedures and timelines. Non-observance of these provisions by the transferor, transferee, and revenue officers produced procedural irregularities. However, the statutory scheme and principles of strict construction of taxing statutes displace equitable remedies; procedural lapses do not create a statutory entitlement to refund where the substantive statutory requirements for transfer and refund were not met. Moreover, both parties shared responsibility for non-compliance, and the doctrine of pari delicto precludes relief to a party in equal fault.

Conclusion: Issue (ii) decided against the petitioner/transferee. Procedural irregularities and revenue officers' failings do not warrant quashing of the appeal order granting relief to the revenue; the writ petitions are dismissed.

Final Conclusion: The statutory transfer-and-refund framework governs entitlement to refund on amalgamation; failure to comply with the prescribed mechanism and timelines, together with equal fault of the parties, forecloses relief to the petitioner. The writ petitions are dismissed and no interference is made with the impugned appellate order.

Ratio Decidendi: On amalgamation, transfer of unutilised input tax credit must be effected through the statutory mechanism (FORM GST ITC-02 under Section 18(3) and Rule 41) with acceptance by the transferee, and refund under Section 54(3) cannot supplant that mechanism; strict interpretation of taxing statutes and the doctrine of pari delicto bar grant of relief where statutory prerequisites and timelines for transfer/refund are not complied with.

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