Facts of the Case:

In this case, the transferor company (ARTIPL) prior to amalgamation, had accumulated substantial unutilised Input Tax Credit (ITC) in its Electronic Credit Ledger (ECL), primarily on account of zero-rated supplies (exports without payment of tax). In terms of Section 18(3) of the CGST Act, 2017 read with Rule 41 of the CGST Rules, 2017, ARTIPL filed FORM GST ITC-02 on 20.10.2023, transferring ₹192.87 crore out of the total unutilised ITC of ₹242.02 crore to the transferee company ATIL, while retaining the balance ₹49.14 crore in its own ECL.

Subsequently, ARTIPL filed a refund application under Section 54(3) of the CGST Act on 04.01.2024 seeking refund of ITC accumulated due to exports for the period April 2023. The refund was initially sanctioned by the competent authority on 28.02.2024.

However, the refund sanction was later set aside by the Appellate Authority by an Order-in-Appeal dated 08.01.2025, holding that after amalgamation, ARTIPL was not entitled to claim refund of unutilised ITC and that the only statutorily permissible course was transfer of ITC through ITC-02.

Aggrieved, ATIL approached the High Court contending that since ARTIPL’s registration continued till 29.11.2024, and since the ITC related to exports made prior to amalgamation, the refund was legally admissible. It was further contended that Section 18(3) and Rule 41 permitted partial transfer of ITC, enabling ARTIPL to retain and seek refund of the balance credit.

Issue:

Whether, after amalgamation, the transferor company could partially transfer unutilised ITC through FORM GST ITC-02 and subsequently claim refund of the remaining ITC under Section 54(3) of the CGST Act.

Held that:

The Court held that Section 87(2) of the CGST Act, 2017, which begins with a non-obstante clause and applies “for the purpose of this Act”, mandates that upon the passing of an order by a Court or Tribunal sanctioning amalgamation or merger, the amalgamating companies shall be treated as distinct persons only up to the date of such order, and their registration certificates are required to be cancelled with effect from the date of the order. This statutory provision overrides any intention to continue treating the entities as separate beyond the effective date of amalgamation.

The Court further held that although no specific time limit is prescribed for filing FORM GST ITC-02, the transfer of unutilised ITC must strictly comply with the statutory scheme governing amalgamations. All formalities relating to transfer of ITC are required to be completed in a timely manner to avoid complications arising from the cessation of existence of the transferor entity.

It was emphasised that FORM GST ITC-02 is the sole and exclusive mechanism prescribed under the CGST law for transfer of unutilised ITC upon amalgamation. Once the transferor company opted to transfer ITC through this mechanism, it could not selectively transfer part of the credit and retain the balance for refund. The statutory language of Section 18(3) and Rule 41 contemplates transfer of “the unutilised input tax credit” and does not permit a bifurcated or discretionary approach.

The Court held that the rights and liabilities in respect of ITC crystallised at the time of zero-rated exports made by ARTIPL, and upon amalgamation, the only legally permissible route for ATIL to obtain the benefit of such ITC was through complete transfer under FORM GST ITC-02. Since ATIL itself had not made the exports, it could not independently claim refund under Section 54(3).

The Court further observed that both the assessee entities and the jurisdictional officers had acted in disregard of statutory mandates, particularly with respect to registration and cancellation procedures. Applying the Doctrine of Pari Delicto, the Court held that where both parties are equally at fault, the law aids neither, and no equitable relief could be granted.

The High Court dismissed the writ petitions and upheld the impugned appellate orders, holding that the refund of unutilised ITC retained by the transferor after amalgamation was not permissible under the CGST Act, 2017.

Case name: M/s. Alstom Transport India Limited Through Its Authorised Signatory Shah Diptej Harshadkumar Versus Additional Commissioner, CGST And Central Excise (Appeals) & Ors. dated 23.01.2026

To read the complete judgement 2026 Taxo.online 163