BRIEF FACTS OF THE CASE
- The Petition was filed by Umicore Autocat India Pvt. Ltd. ('Petitioner') to challenge the action of the GST authorities ('Respondent') in restricting the transfer of unutilized input tax credit in pursuance to a merger/amalgamation, on the premise that transfer of credit under section 18(_), is prohibited from one State to another. The transferor and transferee entities were registered in different States (Goa and Maharashtra), and the portal architecture did not permit such inter-state ITC transfers.
- The Petitioner raised a query on the GSTN portal and also made a representation to the State Tax officer; however, the transfer of credit was denied, stating that there is no feature in the GST portal to transfer credit to another State. Aggrieved by this system-induced denial of a statutory right, the Petitioner filed a Writ Petition to the Hon'ble High Court of Bombay at Goa.
KEY OBSERVATIONS OF THE HON'BLE BOMBAY HIGH COURT
- On bare perusal of Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules, the Hon'ble High Court observed that said provisions do not impose any condition that the transferor and the transferee should be registered in the same State.
- Further, the Court also held that the technical inability of the GST portal to facilitate transfer of credit between two States cannot be a ground to curtail a statutory right of the taxpayer. The Hon'ble Court directed the Respondent to allow transfer of CGST as well as IGST credit through the manual mode for the time being.
- The Court acknowledged the fact that the transfer of SGST credit is an issue since the same would result in financial loss to the State in which the transferor is located; however, since the Petitioner agreed to waive the benefit of SGST credit, the Court did not further delve into the issue.
AURTUS COMMENTS
- One of the main objectives of introducing GST was to create a uniform tax where the credit would be fungible to be utilized by the taxpayers across business streams. The dual GST model has led to various scenarios where such an objective is defeated, resulting in situations of credit accumulation with zero ability of the taxpayers to liquidate and utilize the credit. The decision of the Hon'ble High
- Court has emphasized the intent of the statutory provisions on merger and amalgamation, and in the absence of any restrictions, at least to the extent of central taxes, allowed the transfer of such credits. Since the genesis of SGST is the State GST laws, which are operational only within the State, presuming the ability to transfer these credits outside the State would be tricky.
- However, whether the GSTN will accommodate this functionality for the central taxes in the near future is to be seen. The TRAN-1 battle in the past has witnessed the Government's weariness in enabling the systems to allow taxpayers to take their eligible credits. The ability of the taxpayers to manually transfer this credit will hence be constantly challenged by the GST authorities, unless sanctioned by the higher judicial forum.
- Various representations have been filed in the past to make CGST fungible across India, considering that the Central Government collects the tax. While the dispensation has been offered for the transfer of cash balances, the transfer of CGST credit has not been allowed. Hence, while the transfer of CGST is not permitted between two States as per the provisions of the law in a usual scenario, whether such a transfer will find acceptance with the authorities in a merger or an amalgamation scenario is to be seen. Any attempt by the taxpayers to transfer this credit will hence be constantly challenged by the GST authorities, unless sanctioned by the highest judicial forum.
- The decision by the Bombay High Court sets a positive judicial precedent allowing companies to transfer credits in case of mergers/amalgamations. However, the same is to be followed with caution, considering that other High Courts may not necessarily take the same view. Likely, the decision will be challenged by the authorities before the Supreme Court. Where credit is, anyway, getting lost after the merger/amalgamation, an approach could be to transfer the credit [manually] and, in parallel, reverse the same in the recipient stage till the matter achieves certainty.
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