Interstate ITC Transfer in Mergers: Bombay HC Steps In
The Bombay High Court has taken a landmark step by directing the GST Council and GSTN to enable interstate ITC transfer in mergers and amalgamations. This July 2025 ruling removes a long-standing bottleneck in India’s GST framework, where the portal blocked Input Tax Credit (ITC) movement across state lines, even though the law allowed it.
Let’s break down what the court said, what it means for your business, and how Section 18(3) of the CGST Act plays a crucial role.
Why This Matters for Businesses
When companies merge or restructure across states, their GST registrations—being state-specific—pose a compliance hurdle. Previously:
- Unutilised SGST/CGST/IGST credits couldn’t be transferred from one state GSTIN to another.
- Businesses had to forego legitimate ITC, leading to higher tax costs.
- The GST portal lacked functionality for cross-state ITC transfer under mergers.
This not only contradicted the spirit of the GST law but discouraged legitimate reorganisations.
What Does Section 18(3) of CGST Act Say?
Section 18(3) permits ITC transfer in events like:
- Sale of business
- Merger or amalgamation
- Change in constitution of a registered person
Key requirement:
Form GST ITC-02 must be filed to transfer unutilised ITC to the transferee.
✅ But this only worked within a single state GSTIN.
❌ Cross-state ITC transfer hit a dead-end due to GSTN portal limitations.
What Did the Bombay High Court Rule?
In its July 19, 2025 judgment, the Court ruled in favour of the petitioner—a business undergoing a merger across states. It noted:
- Statutory right to ITC under Section 18(3) cannot be overridden by technical glitches.
- The GST Council and GSTN must enable portal features to support interstate ITC transfer.
- The taxpayer had relinquished SGST in one state to comply, highlighting the practical hardship.
📌 This ruling ensures legal entitlements aren’t denied due to portal design flaws.
Implications of This Decision
This decision could reshape GST compliance for large corporations, especially those with multi-state presence.
Here’s what to expect:
| Before Ruling | After Ruling |
|---|---|
| ITC stuck within state GSTIN | ITC can be shifted to new GSTIN post-merger |
| Businesses faced loss of credit | Statutory right to full ITC upheld |
| GSTN portal lacked utility | Direction issued to enable cross-state ITC via portal |
Expert View: What You Should Do
R. Srinivasan, Tax Advisor:
“Businesses planning restructures should now actively consider claiming ITC across states under mergers. But until GSTN updates its backend, file detailed representations with your jurisdictional officer under Section 18(3). Attach merger orders and credit ledgers.”
✔ Tip: Keep documentation ready—board resolutions, court/NCLT orders, credit breakup by GSTIN. File ITC-02 promptly once GSTN allows cross-state mapping.
Legal Angle: Portal vs. Law
The HC reaffirmed that:
“Technical limitations of the portal cannot nullify substantive legal rights.”
This follows similar observations by other courts where procedural glitches (like in GSTR-9/9C filings) have been held subordinate to statutory provisions. The judiciary is increasingly holding GSTN accountable for blocking rightful claims.
Possible GST Council Action in August 2025
With the next GST Council meeting expected in August, this issue may be tabled formally. If so, we could see:
- Notification amending GSTN SOPs
- Circular clarifying cross-GSTIN transfer mechanism
- Timeline for full portal rollout
Summary
Bombay HC orders GST Council and GSTN to enable interstate ITC transfer in mergers under Section 18(3) of CGST Act, resolving portal blockages and protecting taxpayer rights.
FAQs
Q1. Can I now file ITC-02 for a different state GSTIN after merger?
Legally yes, but portal support is awaited. Till then, file manual representations and preserve ITC records.
Q2. Will this apply to past mergers done before July 2025?
You may approach your jurisdictional officer with HC judgment reference, though retrospective application is not guaranteed.
Q3. Does this apply to slump sales too?
Yes, if the sale involves transfer of business and registered GSTIN, ITC transfer under Section 18(3) is applicable.
Final Word
The Bombay High Court’s intervention marks a crucial step towards fixing GSTN’s blind spots. If your business is merging, acquiring, or restructuring across states—this ruling could unlock crores in stuck credit.
👉 Let Efiletax help you file ITC-02, draft representations, and manage cross-state GST compliance during mergers.