Refund of ITC Barred Post-Amalgamation: Gujarat High Court Ruling Explained
Understanding the Case Background
The Gujarat High Court recently delivered a landmark judgment on the refund of unutilised Input Tax Credit (ITC) after a company amalgamation under GST law. In this case, the transferor company, ARTIPL, underwent amalgamation with ATIL, approved by the National Company Law Tribunal (NCLT). Post-amalgamation, ARTIPL attempted to claim a refund on unutilised ITC instead of fully transferring it to ATIL via the prescribed mechanism.[1][3]
The core dispute arose when ARTIPL partially transferred ITC using FORM GST ITC-02 but retained a portion in its electronic credit ledger to claim a refund. This action violated statutory provisions, leading the court to scrutinize the legality of such claims.[1]
Key Facts of the Case
- Amalgamation scheme approved by NCLT, triggering mandatory GST registration cancellation for the transferor under Section 87(2) CGST Act.
- ARTIPL’s GST registration continued illegally alongside ATIL’s, enabling the refund claim.
- Refund was sanctioned by revenue authorities, prompting a challenge on grounds of statutory non-compliance.[1][3]
Core Legal Issues and Court’s Analysis
The High Court addressed pivotal questions: Can a transferor company claim ITC refund post-amalgamation? Is partial ITC transfer followed by refund permissible? The court firmly ruled no, emphasizing strict adherence to GST statutes.[1]
Under Section 87(2) CGST Act, amalgamating companies are treated as distinct only until the NCLT order date, after which the transferor’s registration must be cancelled. This provision mandates complete ITC transfer to the transferee via FORM GST ITC-02, leaving no scope for retention or refund claims.[1]
Critical Provisions Invoked
- Section 18, 29, 54, and 87 CGST Act: Harmonized to bar refunds post-amalgamation.[1]
- VKC Footsteps Supreme Court precedent: Refund is not a vested right; it demands full statutory compliance.[1]
- Parallel GST registrations post-amalgamation deemed illegal, rendering refund claims unsustainable.[1]
The court criticized revenue authorities for facilitating illegality by allowing dual registrations and ignoring Section 87(2). It held that an assessee cannot benefit from its own wrongdoing.[1]
Key Findings and Implications
The judgment categorically rejected partial ITC retention as impermissible tax planning. Post-amalgamation, the transferor loses legal identity, extinguishing its refund eligibility. Unutilised ITC must exclusively transfer via statutory channels.[1][3]
Practical Don’ts for Businesses
- Do not retain any ITC in the transferor’s ledger after amalgamation.
- Do not pursue refunds on unutilised ITC post-NCLT approval.
- Do not exploit prospective registration cancellation to justify claims.[1]
This ruling is landmark as one of the first High Court decisions comprehensively aligning GST sections on mergers. It impacts corporate restructurings, export entities, and ongoing refund litigations nationwide, urging full compliance to avoid disputes.[1]
Lessons for Taxpayers and Compliance Strategies
For businesses undergoing amalgamation, proactive ITC transfer before NCLT order finality is crucial. Engage GST experts to ensure FORM GST ITC-02 filing accuracy and timely registration surrender. This prevents revenue challenges and sanctions.[1]
The decision reinforces GST’s intent: ITC is a conduit, not a cash equivalent for refunds outside prescribed routes. Companies must align merger schemes with GST mandates from inception to mitigate risks.[1][3]
In summary, the Gujarat HC ruling sets a precedent prioritizing statutory mechanisms over creative refund strategies, safeguarding GST ecosystem integrity. Taxpayers should review ongoing mergers against these guidelines to fortify positions.