Inter-State Transfer of ITC under GST: Restoring Legislative Equilibrium.

The Goa High Court’s judgment in Umicore Autocat India Pvt. Ltd. v. Union of India & Ors. [2025 TAXONATION 1784 (BOMBAY), decided on 10 July 2025] marks a decisive reaffirmation of statutory clarity under the CGST Act. The Court held that unutilized CGST and IGST credits are transferable from a transferor in Goa to a transferee in Maharashtra pursuant to amalgamation, notwithstanding the technical constraints built into the GSTN portal or administrative circulars.

At its core, the ruling restores primacy to the statute: Input Tax Credit is a vested right, not a conditional privilege subject to portal architecture.

Legislative Design: Section 18(3) and Rule 41

Section 18(3) of the CGST Act allows the transfer of unutilized credit on account of merger or business transfer, where liabilities are also transferred. Rule 41 of the CGST Rules operationalizes this through Form ITC-02, requiring only a CA certificate attesting to the transfer of liabilities.

No phrase in the statutory text limits such transfer to entities registered in the same State. The insertion of such a condition through circular or technological constraints amounts to legislation by backend logic—a patently impermissible construct.

The Fallacy of Portal Logic

Circular No. 133/03/2020-GST and the corresponding GSTN portal design restrict ITC transfer between entities registered in different States. This stems from the treatment of such entities as “distinct persons” under Section 25(4). The Court unequivocally held that:

Technical architecture cannot override legislative will.

The restriction flows not from the statute but from backend software logic and circular interpretation—a classic instance where administration overtakes interpretation.

A Practical Illustration: Accommodation Credit Across States

Suppose a legal professional registered under GST in Maharashtra stays at a hotel in Gujarat for work-related travel. The invoice includes CGST and SGST charged by the Gujarat-based hotel.

While SGST may not be claimable due to the State linkage, the CGST portion is a central levy and is theoretically available for ITC under Section 16—provided it was incurred in furtherance of business and the invoice meets the conditions under Rule 36.

Yet, in practice, the portal often restricts this claim on the ground that the recipient is not registered in Gujarat. This artificial limitation is structurally similar to the situation in Umicore Autocat, where ITC transfer was denied merely because the transferor and transferee belonged to distinct States.

By extending the Goa High Court’s reasoning, one must logically conclude that the CGST portion of hotel accommodation charges incurred by a Maharashtra-registered person in Gujarat ought to be claimable—subject to standard conditions of admissibility.

The Court’s ruling underscores that territorial segmentation cannot override eligibility criteria for CGST, which is a central levy and not inherently State-bound.

Cross-State Transfer of ITC under GST: A Judicial Breakthrough

Introduction

The Goa High Court’s decision in Umicore Autocat India Pvt. Ltd. v. Union of India & Ors. [2025 TAXONATION 1784 (BOMBAY), decided on 10 July 2025] marks a pivotal moment in the interpretation of Section 18(3) of the CGST Act, 2017. The Court allowed the transfer of unutilized CGST and IGST balances from a transferor registered in Goa to a transferee registered in Maharashtra, following a merger sanctioned by the NCLT. This ruling challenges the long-standing technical embargo imposed by the GSTN portal and Circular No. 133/03/2020-GST.

Statutory Framework

• Section 18(3) of the CGST Act, 2017-Allows transfer of unutilized ITC in cases of sale, merger, demerger, amalgamation, lease, or transfer of business with liabilities.

• Rule 41 of the CGST Rules, 2017-Prescribes filing of Form GST ITC-02 with a CA certificate for transferring ITC to the transferee.

• Circular No. 133/03/2020-GST-Restricts ITC transfer to cases where both entities are registered in the same State, citing the “distinct person” concept under Section 25(4).

Goa High Court’s Ruling: Key Takeaways

The Court emphasized that legislative intent favors seamless credit flow, and technical limitations must not frustrate substantive rights.

Judicial Precedents & Advance Rulings

In re: Shilpa Medicare Ltd. – AAR, Andhra Pradesh

• Citation: [2020 TAXONATION 273 (ANDHRA PRADESH-AAR)], decided on 24 February 2020

• Key Holding: Allowed transfer of unutilized ITC from Vizianagaram (AP) to Bengaluru (Karnataka) under Section 18(3) and Rule 41, treating the transaction as a transfer of a going concern exempt under Notification No. 12/2017-Central Tax (Rate).

MMD Heavy Machinery (India) Pvt. Ltd. v. Assistant Commissioner – Madras HC

• Citation: [2021 TAXONATION 989 (MADRAS)], decided on 2 June 2021

• Key Holding: Denied ITC transfer where the factory was shut prior to GST implementation and credit pertained to the CENVAT regime. Goa HC distinguished this case as it did not involve a going concern or GST-era credit.

Implications for Slump Sale & Business Transfers

Under Notification No. 12/2017-Central Tax (Rate), transfer of a business as a going concern is exempt from GST. In such cases:

• ITC transfer is allowed if liabilities are also transferred.

• Form ITC-02 must be filed with a supporting CA certificate.

• Apportionment (in case of partial transfer) is based on the asset ratio at the State level, not PAN-India.

Practical Challenges & Recommendations

Conclusion

The Goa High Court’s ruling affirms that unutilized CGST and IGST credits are transferable across States in cases of merger or slump sale, provided liabilities are also transferred. This decision upholds the spirit of GST as a destination-based, seamless credit system and calls for urgent systemic updates to ensure compliance with judicial mandates.

The above ruling restores legislative coherence. Section 18(3) must be given its plain textual meaning. CGST is not a fragmented levy—it is centrally administered and universally allocable. The inability to claim such credit due to portal limitations or circular misinterpretation is a systemic fault that must be remedied. As this example illustrates, any expenditure for business—be it a hotel in Gujarat or training in Tamil Nadu—must permit CGST credit to a registered person in Maharashtra.

The path forward lies not in artificial restrictions but in statutory fidelity and technological reform.

To
The Chief Commissioner,
Centre Zone,
GST Bhavan, Church Gate,
Mumbai – 400020
Government of India

Subject: Representation seeking systemic allowance of cross-State CGST & IGST ITC claims in light of Goa HC ruling in WP No. 463 of 2024

Respected Sir,

I, CA Niilesh J Zaveri, write to respectfully submit this representation on the applicability and operational treatment of input tax credit (ITC) under the Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) framework, with reference to the judgment pronounced by the Hon’ble High Court of Bombay at Goa in Umicore Autocat India Pvt. Ltd. v. Union of India & Ors. [2025 TAXONATION 1784 (BOMBAY), decided on 10 July 2025].

The said judgment upholds that unutilized CGST and IGST credits are statutorily transferrable to a successor entity even across State boundaries, pursuant to amalgamation or transfer of business with liabilities under Section 18(3) of the CGST Act read with Rule 41 of the CGST Rules, 2017. The Hon’ble Court has held unequivocally that:

“We do not find that the boundaries of the State would create any impediment… and all its liabilities along with the ITC must go to the Transferee Company.”

(Page 29, Judgment dated 10 July 2025, (2025 TAXONATION 1784 (BOMBAY))

The Court further directed the authorities to process such transfer “by physical mode for the time being” and urged the GSTN and GST Council to update the portal architecture to reflect the legal position.

Need for Broader Operational Interpretation

In light of the above, I respectfully urge your good office to take up the matter for administrative consideration and recommend the following systemic enhancements:

1. Allow CGST credit to be availed by recipients registered in a different State, where tax has been paid in furtherance of business and the invoice complies with statutory conditions under Section 16 and Rule 36.

   • Illustration: A registered person in Maharashtra incurs CGST on hotel accommodation during official travel in Gujarat. The CGST component, being central levy, should be claimable notwithstanding non-registration in Gujarat.

2. Permit IGST credit for inter-State services received from suppliers outside the State of registration, provided the supply qualifies under Section 7 of the IGST Act and the tax invoice is properly disclosed.

3. Revise backend validations in the GST portal to eliminate restrictive error messages such as “Transferee and Transferor should be of same State/UT”, which are not supported by the text of Section 18(3) or Rule 41.

4. Clarify through circular or notification that Circular No. 133/03/2020-GST does not override statutory entitlement to ITC transfer and that administrative design must conform to jurisprudential interpretation.

Legal Support and Precedents:

• Umicore Autocat India Pvt. Ltd. v. Union of India [2025 TAXONATION 1784 (BOMBAY)]– Goa HC, WP No. 463/2024, Judgment dated 10 July 2025

• In re: Shilpa Medicare Ltd. – AAR Andhra Pradesh [2020 TAXONATION 273 (ANDHRA PRADESH-AAR)]

• MMD Heavy Machinery (India) Pvt. Ltd. – Madras HC, [2021 TAXONATION 989 (MADRAS)] (distinguished by Goa HC)

These rulings have clarified that ITC must be construed as a statutory and vested right, not contingent upon location or portal constraints.

I trust that the above representation will be considered favorably, and necessary steps will be initiated to bring consistency between statutory intent and administrative implementation. I remain available for further discussion or clarification, should your office so require.

Yours faithfully,
For Khandelwal Jain & Co.

Chartered Accountants

Niilesh J Zaveri

Partner

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