Introduction
The non-transferability of Input Tax Credit (‘ITC’) amongst states has long been the point of debate between legal intent and technical feasibility. In a country aspiring for unified taxation scheme, this barrier has translated into stranded ITCs, blocked working capital, and has been a hurdle for the post-merger continuity of business. In a significant ruling, the Hon’ble Bombay High Court (Goa Bench), in the case of Umicore Autocat India Pvt. Ltd. v. Union of India & Ors. [2025 (7) TMI 1188 – Bombay HC], has taken a significant step in clarifying the transfer of unutilized ITC during business restructuring. This judgment not only clarifies the legal position on interstate ITC transfer but also addresses the technical and administrative hurdles posed by the GST Network (GSTN) portal.
Brief Summary of the judgment
The petitioner, Umicore Autocat India Pvt. Ltd., emerged as a new entity following the amalgamation of M/s Umicore Anandeya India Pvt. Ltd. (registered in Goa) with itself (registered in Maharashtra). Post-merger, the petitioner sought to transfer the unutilized ITC from the transferor company’s electronic credit ledger to its own account. However, the GSTN portal denied the request, citing a technical restriction that both entities must be registered in the same State/Union Territory.
Challenging this denial, the petitioner approached the Bombay High Court. The Court undertook a rigorous analysis of Section 18(3) of the CGST Act, 2017, read with Rule 41 of the CGST Rules, 2017, concluding that no statutory provision restricts ITC transfer solely based on the geographical location of the transferor and transferee. The Court criticized the GSTN portal’s design for imposing limitations that are not supported by law, emphasizing that technical constraints cannot override statutory entitlements.
While the Court upheld the legality of transferring CGST and IGST credits across states post-amalgamation, it refrained from directing the transfer of SGST credit due to concerns raised by revenue authorities regarding potential loss to the originating state’s exchequer (Goa). The petitioner voluntarily relinquished SGST credit, allowing the Court to safeguard taxpayer rights without triggering a direct conflict over inter-state SGST adjustments which is an area that still remains ambiguous under the current GST framework.
The judgment also clarified the definition of ‘Registered Person’ under Section 2(94), noting that Section 25 permits separate registrations for each State/UT, treating each as a distinct legal entity. Importantly, the Court emphasized that Section 18(3) does not condition ITC transfer on the transferee being registered in the same state as the transferor.
By adopting a literal interpretation of the statute, the Court reinforced that conditions not expressly stated in law cannot be read into it. This ruling not only affirms the legality of inter-state ITC transfer post-amalgamation but also underscores the urgent need for technical upgrades to the GSTN portal to ensure seamless credit flow in line with statutory provisions.
Distinguishing the Madras High Court Ruling: A shift toward substance over structure
In delivering its judgment, the Bombay High Court notably distinguished the earlier ruling of the Madras High Court in the case of MMD Heavy Machinery (India) Pvt. Ltd. v. Asst. Comm. of GST & C. Ex., Chennai - 2021 (53) G.S.T.L. 3 (Mad.). The Madras High Court had denied ITC transfer on the grounds that Section 18(3) applies only where there is a change in the constitution of a business, not in cases of mere relocation of a unit across states without such change. In contrast, the Bombay High Court adopted a substantive approach, holding that statutory entitlements under Section 18(3) prevail over technical or structural limitations. It emphasized that legal rights cannot be curtailed by portal design or administrative interpretation, thereby reinforcing the dominance of legislative intent.
The divergence between the Bombay and Madras High Courts raises a compelling jurisprudential question: Would the Madras High Court have permitted ITC transfer had the case involved a change in the constitution of business? If so, it opens the door to a broader interpretation suggesting that the principle of ITC transfer may not be confined to separate legal entities post-amalgamation, but could also extend to distinct persons under GST, i.e., different registrations of the same entity across states.
Under the GST framework, distinct persons are recognized by virtue of Section 25, which allows a single legal entity to obtain separate registrations in different States/UTs, each treated as a separate taxable person. This concept is further reinforced by Rule 41A of the CGST Rules, which specifically facilitates ITC transfer between such registrations within the same State or UT, provided they belong to the same legal entity.
However, the absence of a corresponding provision for inter-state ITC transfer between distinct persons i.e., within the same entity, raises a critical limitation. The Bombay High Court’s ruling, while progressive, was grounded in the context of amalgamation between separate legal entities, and not intra-entity transfers across states.
Therefore, while the judgment sets a precedent for inter-state ITC transfer post-merger, its extension to distinct persons within the same entity remains legally untested. Any such extension would require either judicial affirmation in a suitable case or legislative intervention to harmonize the GST framework with commercial realities and ensure seamless credit flow across business structures.
Unresolved ambiguity – Revenue loss of the transferor state
Though the Bombay High Court’s judgment marks a progressive shift in interpreting GST law, it simultaneously opens a new line of debate, particularly from the perspective of state revenue authorities. The primary concern raised by the department was that allowing the transfer of SGST credit from Goa to Maharashtra could result in a loss to Goa’s exchequer. However, such concerns remain speculative and unsubstantiated, given the nature of ITC as a deferred benefit, realizable only upon actual utilization against a particular tax liability.
GST, by design, is a destination-based consumption tax. Under Section 53 of the CGST Act, the Central Government is mandated to apportion CGST credit utilized for IGST payments to the destination state. A parallel mechanism exists under the respective SGST Acts, requiring a state to transfer an equivalent amount of SGST credit used for IGST payments to the state where the supply is consumed. This statutory framework ensures that revenue ultimately accrues to the consuming state, thereby preserving fiscal neutrality.
Accordingly, any perceived revenue loss to the transferor state is notional and only materializes if and when the credit is actually utilized. Despite this, the Court refrained from issuing directions on SGST transfer, leaving the issue unsettled. This cautious approach leaves room for interpretational ambiguity and future litigation, particularly in the absence of a clear statutory or procedural mechanism for inter-state SGST credit migration in cases of business reorganization or restructure.
Way Forward
Amidst the cloud of uncertainties surrounding SGST treatment and inter-state ITC transfer, businesses must adopt a cautious yet proactive approach. Filing formal legal representations before GST authorities can help seek clarity on the open-ended issues raised by the Bombay High Court’s judgment. Where appropriate, the advance ruling mechanism may be explored for case-specific guidance. Additionally, in light of recent jurisprudence, taxpayers may also consider the refund route for unutilized ITC, particularly in cases involving discontinuance of business. A fact-driven, well-documented strategy remains essential to navigate this evolving legal landscape.
Conclusion
The Umicore ruling reaffirms that the spirit of GST law favours the seamless flow of ITC over rigid territorial boundaries. While the interim relief supports the ease of doing business, the true challenge lies in harmonizing statutory provisions, judicial interpretations, technological capabilities, and revenue considerations. However, it will be interesting to observe whether implementing authorities will apply the court’s ratio decidendi into consistent framework to transfer unutilised ITC between separate legal entities as well as distinct persons across states and evolve system procedures accordingly or will technical challenges and notional loss to the state governments stretch the ongoing debate.
[The authors are Executive Partner, Associate Partner and Associate, respectively, in GST practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]
