Gujarat High Court: Inter-State ITC Transfer in Amalgamation Cannot Be Blocked — Emerson Process Management Ruling Explained
Introduction
A significant ruling from the Gujarat High Court has brought much-needed clarity on a contested question under GST law — whether the transfer of unutilized Input Tax Credit (ITC) from one registered entity to another, arising from an NCLT-approved amalgamation, can be denied solely on the ground that the two entities hold registrations in different States. In Emerson Process Management (India) Pvt. Ltd. v. Union of India, the Court firmly answered in the negative, holding that neither the statute nor the rules impose any such restriction, and that the GST authorities cannot manufacture barriers that the legislature deliberately chose not to erect.
This decision carries far-reaching implications for corporate restructurings involving entities with multi-state GST registrations, and firmly establishes that procedural or portal-based limitations cannot override substantive statutory entitlements.
Background Facts
Emerson Process Management (India) Pvt. Ltd. (hereinafter "the Petitioner") is a manufacturing enterprise holding GST registrations across multiple States in India.
Pursuant to a scheme of amalgamation duly sanctioned by the National Company Law Tribunal (NCLT), the Petitioner amalgamated with M/s Pentair Valves and Controls India Pvt. Ltd., which served as the transferor company. As a direct consequence of this court-approved amalgamation:
- All business operations of the transferor company stood vested in the Petitioner.
- All assets, liabilities, and unutilized ITC of the transferor were also to be transferred.
- Notably, the ITC in question had originally been carried forward from the Central Excise regime into GST by the transferor company as transitional credit through TRAN-1.
The Portal Obstacle
When the Petitioner sought to effectuate the ITC transfer using Form GST ITC-02, as mandated under the CGST Act read with the CGST Rules, 2017, the online GST common portal threw up an error. The system declined to process the transfer request and embedded an observation directly within Form ITC-02 itself — stating that both the transferor (the entity parting with the credits) and the transferee (the entity receiving the credits) must belong to the same State or Union Territory.
This portal-generated restriction had no backing in any statutory provision, circular, or notification. Despite this, the Petitioner's repeated attempts to escalate the matter — through reminder letters to concerned authorities and direct correspondence with jurisdictional GST officers — yielded no satisfactory resolution.
With no administrative remedy forthcoming, the Petitioner approached the Gujarat High Court by way of a writ petition.
Legal Questions Before the Court
The Gujarat High Court was called upon to adjudicate the following core issues:
Whether the transfer of ITC under
Section 18(3)of the CGST Act, 2017, read withRule 41of the CGST Rules, 2017, is legally permissible in circumstances where an amalgamation involves registered persons located in different States?Whether GST authorities possess the power to impose restrictions on ITC transfer that find no express basis in the statutory framework?
Relevant Legal Provisions
Section 18(3) — Availability of Credit in Special Circumstances, CGST Act, 2017
"Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provision for transfer of liabilities, the said registered person shall be allowed to transfer the unutilized input tax credit in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in the manner prescribed."
This provision is the cornerstone of ITC transfer rights during corporate restructuring events. It is notable that the language of Section 18(3) contains no qualification restricting such transfers to same-State entities alone.