Kerala AAR: No Legal Restriction on Inter-State CGST/IGST Credit Transfer on Merger

Kerala AAR: No Legal Restriction on Inter-State CGST/IGST Credit Transfer on Merger

Issue: Whether a company in one state (Kerala) can legally transfer the unused closing balance of Central GST (CGST) and Integrated GST (IGST) Input Tax Credit (ITC) from the Electronic Credit Ledger (ECL) of a merged company in a different state (Haryana), despite the GST portal having a technical restriction against inter-state ITC transfers.

Facts:

• Ms. Flytxt Mobile Solutions Private Limited (Applicant) holds a GSTIN in Kerala.
• The Applicant merged with M/s. Mventus Solutions Private Limited and M/s. Madmart Services Private Limited, as approved by NCLT (effective April 1, 2018).
• The merged entity (M/s. Mventus Solutions) had an unused ITC balance (₹22,29,668) in its Haryana GSTIN’s ECL, which the Applicant sought to transfer to its Kerala GSTIN.
• The GST portal rejected the transfer application (Form GST ITC-02), citing that the transferee and transferor must be registered in the same State/UT, a technical restriction.

Decision:

The Kerala Authority for Advance Ruling (AAR) held that there is no statutory embargo in the GST law on the inter-state transfer of CGST and IGST credits upon a court-approved merger. The AAR ruled that the GST portal’s rejection was a technical issue, not a legal one, and clarified that the Applicant is eligible for the credit transfer.

Key TakeDowns:

• Statutory Right Overrides Portal: The ruling prioritizes the vested statutory right to transfer unutilized ITC under Section 18(3) of the CGST Act and Rule 41 of the CGST Rules, confirming that the GST portal’s technical limitations cannot override a taxpayer’s lawful entitlement.
• Merger Provision: Section 18(3) and Rule 41 explicitly allow the transfer of unutilized ITC on account of merger or amalgamation, provided there is a specific provision for the transfer of liabilities.
• Remedy Directed: The Applicant was directed to approach the jurisdictional authority for the resolution of the technical barrier. * Judicial Alignment: The Kerala AAR’s decision aligns with the Bombay High Court’s earlier view that no GST law prohibition restricts the inter-state transfer of ITC in cases of merger or amalgamation.

Source:- Judgement