2026 (3) TMI 826 - HC - GST

Input tax credit transfer upheld despite cross State registrations; portal endorsement invalid and manual ITC 02 processing directed.

The issue concerns transferability of unutilized input tax credit (ITC) under an approved amalgamation scheme where transferor and transferee hold ... Validity of transfer the unutilized balance of ITC from the transferor company by filing Form GST ITC-02, on the GST portal - transferor and transferee have registrations in different States/Union Territories - Statutory form ITC-02 endorsement requiring same State/UT - manual processing of ITC-02 where portal mechanism is deficient. Statutory form ITC-02 endorsement requiring same State/UT - HELD THAT: - The Court found that the departmental endorsement was embossed on the statutory Form ITC-02 without any statutory basis and that Rule 41 of the CGST Rules does not provide for a column to record such departmental opinion. The endorsement, being absent in the statutory scheme, cannot be incorporated into the Form and thus cannot be used to deny transfer of unutilised input tax credit. [Paras 6] The departmental endorsement on Form ITC-02 is illegal and cannot be relied upon to refuse transfer of ITC. Transfer of input tax credit on amalgamation - Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules permits transfer of unutilised input tax credit on amalgamation approved by the NCLT and does not prohibit transfer where transferor and transferee are in different States. - HELD THAT:- Relying on the statutory scheme and the reasoning of the Bombay High Court in Umicore Autocat India (P) Ltd. [2025 (7) TMI 1188 - BOMBAY HIGH COURT] the Court held that neither Section 18(3) nor Rule 41 bars transfer of ITC across States upon a scheme of amalgamation approved by the NCLT. The Court observed that the statutory provisions do not contain a restriction requiring transferor and transferee to be located in the same State/UT and that the Central component of GST would not suffer by permitting such transfer; consequently, the restriction imposed via the portal is de hors the statutory intent. The Court limited its consideration to CGST as the petitioner had confined its claim accordingly. [Paras 6] The petitioner is entitled to transfer the unutilised CGST credit pursuant to the NCLT-approved amalgamation; statutory provisions do not prohibit inter-State transfer in such circumstances. Manual processing of ITC-02 - HELD THAT:- Recognising the practical constraint posed by the GSTN portal, the Court directed that until a proper amendment or portal mechanism is provided, the department shall accept manually filed ITC-02 forms and process them. A specific timeline of six weeks for processing from receipt of the order was imposed to ensure effective implementation of the entitlement recognized on merits. [Paras 6] Respondents shall accept manually filed ITC-02 forms and process them within six weeks from receipt of the order. Final Conclusion: The writ petition is allowed: the departmental endorsement on Form ITC-02 requiring transferor and transferee to be in the same State/UT is unlawful; Section 18(3) read with Rule 41 permits transfer of unutilised CGST on NCLT-approved amalgamation even where entities are in different States; until the portal is updated, the department must accept and process manually filed ITC-02 forms within six weeks. Issues: Whether unutilized input tax credit (ITC) of a transferor company can be transferred to the transferee company following an NCLT approved scheme of amalgamation where the transferor and transferee have registrations in different States/Union Territories, and whether an endorsement on the statutory Form GST ITC 02 on the GST portal restricting transfer to entities of the same State/U.T. is permissible.Analysis: The Court examined Section 18(3) of the Central Goods and Service Tax Act, 2017 and Rule 41 of the Central Goods and Service Tax Rules, 2017, along with related provisions (including Sections 22 and 25 of the CGST Act) and Section 20 of the Integrated Goods and Service Tax Act, 2017. The Court also considered the decision of the Bombay High Court in Umicore Autocat India (P) Ltd and the administrative Circular No. 133/03/2020 GST dated 23.03.2020. The Court found that the statutory provisions permit transfer of ITC on amalgamation pursuant to an NCLT approved scheme and do not contain a prohibition against transfer where the transferor and transferee are registered in different States/U.Ts. The Court further held that the department's insertion of an endorsement on the statutory Form ITC 02 on the GST portal (stating transferee and transferor should be of the same State/U.T.) is not authorised by statute; a portal constraint or administrative notation cannot override or add a statutory restriction. The Court accepted the reasoning in Umicore and noted that practical issues with the GSTN portal cannot be a ground to deny substantive statutory rights; until portal amendment, manual acceptance and processing of Form ITC 02 is required.Conclusion: The petitioner is entitled to transfer the unutilized ITC pursuant to the NCLT approved scheme of amalgamation notwithstanding that the transferor and transferee are registered in different States/U.Ts; the endorsement on the statutory Form ITC 02 restricting transfer to the same State/U.T. is invalid. The respondents are directed to accept and process Form ITC 02 manually and complete processing within six weeks from receipt.