2026 (1) TMI 1337 - HC - GST

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 ... Entitlement to refund of unutilised ITC where transferor partially transferred ITC on amalgamation and refund was claimed subsequently - Refund of unutilised input tax credit - transfer of input tax credit on amalgamation - registration consequent to amalgamation - cancellation of registration - liability in case of amalgamation or merger of companies - Doctrine of Pari Delicto - Form GST ITC-02 compliance - HELD THAT:- Section 87 of the CGST Act, 2017 prescribes the liability in case of amalgamation or merger of companies. For the purpose of registration of effect of amalgamation on the registration of the ARTIPL, the provision of sub-section (2) to section 87 of the CGST Act, 2017 bears relevance. Sub-section (2) to section 87 of the CGST Act, 2017 begins with non-obstante clause and also has an added expression “for the purpose of this Act”. Non-obstante clause has been inserted with reference to the “said order” which is in context with sub-section (1), which again is in context with the order passed by the Court or Tribunal sanctioning amalgamation or merger. Sub-section(2) directs that two or more companies are to be treated as “distinct companies” for the period up to the date of the said order and the registration certificates of the said companies shall be cancelled with effect from “the date of the said order”. Thus, the statutory provision of sub-section (2) to Section 87 of the CGST Act, 2017 overrides the intention of treating two or more companies as distinct companies for the purpose of the Act, and the registration certificate of such companies is required to be cancelled from the “date of the order” passed by the Court or Tribunal sanctioning amalgamation or merger of the companies. Though, there is no time limit prescribed for filing FORM GST-02, however, keeping in mind the above statutory time limits, it is mandatory that the same are observed and followed. As held by us there is violation and disregard to the statutory provisions. All the formalities of transfer of unutilized ITC are required to be completed within the time specified in order to avoid further complications on amalgamations of the entities. In the instant case, the action of registration and cancellation of registration is at odds on with the settled legal precedent that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Pertinently, FORM ITC-02 requires to mention the GSTIN of both the transferor-company and transferee-company. In other words, the Transferor Company should have a valid registration on the date of transfer of unutilized Input Tax Credit. The petitioner-ATIL has obtained Registration No. 24AAJCA1167G1ZX (for Gujarat) on 21.12.2025 w.e.f. 25.05.2023. The registration of ARTIPL was cancelled on 29.11.2024. FORM GST ITC-2 was transferred on 20.10.2023 by the ARTIPL for unutilized credit. All pending liabilities, interests etc., were required to be addressed and settled by the transferor-ARTIPL during the transition period. The rights and liabilities of ITC of ARTIPL got crystallized on the zero rated export of goods resulting into the ITC in its electronic ledger. Indubitably, on amalgamation and formation of ATIL, the only and exclusive manner to transfer the unutilized ITC from its electronic ledger was through FORM GST ITC-02, which it resorted to, but only in substantial part, i.e, almost 80%. The petitioner ATIL was entitled to claim the entire unutilized ITC of ARTIPL and also encash it, if it was transferred by following the statute, since ATIL could not have claimed it any manner since, it never exported the goods. Hence, we do not find that respondent No. 1, while passing the Order-in-Appeal dated 08.01.2025, has committed any patent illegality in exercising his power under section 107 of the CGST Act, 2017. As noticed by us, hereinabove, the action of both the entities and the Jurisdictional Officer is pernicious to the statutory provisions, and this Court cannot turn a blind eye to the illegality/irregularity committed by them, which ultimately abetted the amalgamated entities. In view of the Doctrine of Pari Delicto (in equal fault), the law aids neither party. Thus, erstwhile ARTIPL cannot seek any benefit of refund from the fault of the Jurisdictional Officer when it is equally at fault. Correspondingly, at this stage, ATIL cannot be allowed to claim refund of unutilized credit which was lying in the electronic ledger of ARTIPL since the statute does not permit the course suggested by petitioner-ATIL. As we have already noticed the flawed approach by the Jurisdictional Officer/s in dealing the cancellation of registration of the transferee - ARTIPL and the registration of the transferor ATIL; we direct the Revenue to issue appropriate directions / instructions for scrupulously following the mandate of statutory provisions while dealing with the registrations of both the entities in case of amalgamation in order to avoid future complication. Appropriate instructions are also required to be issued for taking prompt steps within the time frame as soon as the Jurisdictional Officer comes to know about the fact of amalgamation of the entities. On an overall analysis of the facts, statutory provisions and the case laws, the writ petitions fail legal scrutiny, hence we restrain ourselves from interfering with the impugned orders. The writ petitions stand dismissed. 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.