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 registrations in different States/UTs and whether a GST portal endorsement restricting transfers to same State/UT is permissible. The court applied statutory interpretation of the GST transfer provisions and rules, accepted prior reasoning permitting ITC transfer on amalgamation, and held there is no statutory bar to cross State transfers; an administrative endorsement on Form ITC 02 that adds such a restriction is not authorised. The respondents were directed to manually accept and process ITC 02 within six weeks.

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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.

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