Bombay HC Permits Inter-State GST ITC Transfer on Post-Amalgamation, Orders GST Council and GSTN to Create Mechanism [Read Order]

Bombay HC Greenlights Inter-State GST ITC Transfer After Business Mergers

In a significant ruling with implications for businesses undergoing mergers and amalgamations, the Bombay High Court has permitted the transfer of accumulated Input Tax Credit (ITC) across states following such corporate restructuring. The ruling addresses a critical gap in the Goods and Services Tax (GST) framework concerning the seamless transfer of ITC in inter-state mergers.

Court Directs Creation of Mechanism for ITC Transfer

The High Court has directed the GST Council and the Goods and Services Tax Network (GSTN) to urgently establish a functional mechanism enabling the transfer of ITC in cases of amalgamation involving entities registered in different states. This directive aims to rectify a long-standing operational hurdle faced by businesses.

“Software Cannot Override Statutory Rights” – Court’s Observation

The court emphasized that the lack of functionality on the GST portal or limitations in the software’s “business logic” cannot supersede the statutory rights granted under the GST Act. The court firmly stated that software and digital infrastructure should be designed to facilitate compliance, rather than impede it.

Impact on Indian Businesses

This landmark judgment provides much-needed clarity and relief to companies undergoing mergers and acquisitions. Previously, businesses faced significant challenges in transferring accumulated ITC across state lines following amalgamation, leading to potential financial losses. The HC order paves the way for:

• Enhanced operational efficiency for businesses undergoing mergers.
• Reduced financial burden by enabling seamless ITC transfer.
• Greater clarity and certainty in the application of GST laws to corporate restructuring.

What’s Next?

The GST Council and GSTN are now tasked with developing and implementing a robust system for facilitating the transfer of ITC. This will likely involve modifications to the GST portal and potentially changes to the relevant regulations. Businesses should closely monitor these developments and prepare to utilize the new mechanism once it is implemented.