A Merger Recognised Everywhere Except on the GST Portal

I. Introduction

The amalgamation scheme approved by the National Company Law Tribunal does not care about State borders. Goods and Services Tax does. It is a destination based dual levy in which the Centre will collect CGST and IGST while every individual State will levy and collect its own SGST. When that merger straddles a state, the two schemas clash, with the clash manifesting on the GST portal, which refuses to allow a transferor and transferee who hail from different states.

The ensuing tussle over Section 18(3) of the CGST Act, as this piece argues, isn't quite a technology issue, although that is often how we describe it. This is, rather, a matter of how much weight a clarificatory circular can be afforded when it seems to whittle down a statutory right, and of whether courts should step in to micromanage manual workarounds for what is, ultimately, an unresolved fiscal federal question. It reads Section 18(3) and Rule 41 for what they permit, tests whether Circular 133/03/2020-GST did more, weighs the Revenue's own case against transfer, analyses Umicore Autocat India Pvt. Ltd. v. Union of India and Emerson Process Management (India) Pvt. Ltd. v. Union of India, and closes on what the pending Supreme Court appeal means for those advising on a cross-border merger today.

II. The Statutory Design

A. What Section 18(3) Permits

Section 18(3) allows a registered person to carry over unutilised input tax credit in cases of change of constitution due to sale, merger, demerger, amalgamation, lease, or transfer of business, provided the deed also specifically states that liabilities are transferred. The mechanics are provided by Rule 41 on filing Form GST ITC-02 duly accompanied by the certificate from a Chartered Accountant affirming that liabilities have indeed been transferred. There is no condition whatsoever laid in either rule that both the transferor and transferee belong to the same state of registration; what Parliament insisted on was the clause regarding transfer of liabilities accompanied with the certificate.

B. What the Statute Does Not Restrict

That silence is entirely intended. The courts have always understood that one can do nothing to give a greater scope to a taxing statute which implies a burden, or in this case, a denial of a benefit, on the text that Parliament never wrote into it. That very thought, that the court can make no additions to that which the legislature has left unwritten, was what the Umicore case from the Bombay High Court alluded to:

“There is an established rule of construction that an omission can and an interpretation to supply cannot.”

From that perspective, the administrative barrier on the portal created in your State is not an interpretation of Section 18(3) and nothing else. It is a statutory overlay, to borrow a term from another aspect of the law, superimposed on it by executive action rather than by the will of the elected representatives of the People (or the GST Council, for that matter).

III. The Circular's Quiet Overreach

Meanwhile, Circular No. 133/03/2020-GST, which issued clarifications on apportionments to Rule 41, did well in affirming that the apportionment formula should include all re-organisation types that result in transfer of some assets, not just demergers. What it inappropriately did instead was order that Form ITC-02 can be filed only if both the transferee and transferor are registered in the same State. This adds a same-state threshold to a statutory rule that wasn't itself limited to the same State, which was certainly not something that a circular under Section 168(1), set up for uniform application of a provision, should have done. Further, the GST Network added this restriction right into the electronic form directly and not into any reasoning document that could be challenged by a disappointed assessee, a fact the High Court of Gujarat called out explicitly.

IV. What the Courts Actually Decided

The two decisions below test that institutional question in practice, whether a writ court should be the body correcting what is, at heart, a rulemaking gap left by the GST Council.

A. Umicore and the Limits of a Circular

In Umicore, decided by the Bombay High Court's Goa Bench on 10 July 2025, an NCLT-approved amalgamation left credit in Goa while the surviving transferee was registered in Maharashtra, and the portal refused the transfer. The Revenue relied on the distinct person concept under Section 25(4) and on the Circular's same-state filing rule.

The Court held that Section 25(4) pertains to general registration, but Section 18(3) is a specific, subsequent provision relating to credit transfer in the context of reorganisations, and its wording neither explicitly refers to nor implies the distinct person rule. This interpretation was aided by Section 22(4), which provides that a transferee shall be liable to register when a scheme becomes effective — an indication that the legislature had already foreseen and permitted cross-state reorganisation when enacting credit transfer provisions.

But the much more interesting manoeuvre took place with SGST, whereby the Court was persuaded IGST and CGST can't result in loss of state revenue even if used anywhere, as these are centrally administered, unlike SGST, which in practice is state revenue that moves from Goa to Maharashtra. But rather than face this tougher issue, the petitioner dropped this argument. This now leaves SGST use under Section 18(3) an open question, and creates an anomaly where a leading authority for the transfer of cross-border credit is not even a precedent that SGST has such usage. A pragmatic solution should perhaps lie not in a restrictive reading of Section 18(3) but a settlement mechanism between states established under the Council's Article 279A mandate, akin to what IGST already provides.

There was a grain of logic to Revenue's apprehension. Before the Bombay High Court, the Advocate General advised that transfers of state credit risked audit fragmentation, in as much as, after transfers, the state loses control over credit in another state and the certificate under Rule 41 was not envisioned for these transfers. The Court's response — that state revenue doesn't fall when IGST/CGST are used because it is centrally administered — doesn't address this 'audit integrity' aspect of the complaint even while acknowledging the state's fiscal neutrality.

B. Emerson and the Procedural Argument

Legacy Cenvat credit carried forward the benefit to be CGST (accounted during amalgamation); it was then taken up under the judgment of the Gujarat High Court in Emerson (dated 5 March 2026), in which there was not even an attempt by the Petitioner to base anything upon SGST, hence claiming benefit for CGST only, when — at least from the Umicore point of view — this could have been argued, since this was in respect of areas left open by the Umicore judgment.

The Gujarat High Court also reasoned like Umicore on Section 18(3), and added a procedural finding: that giving a rejection reason embedded in the statutory form (ITC-02) was not sufficient, since no specific section or rule was mentioned in the rejection notice, and hence it could not be determined whether the rejection was based on a conscious view, a system error, or a rigid rule. The reason, it held, must be recorded separately, so as to allow the taxpayer to reply to or justify the rejection on merits.

V. An Unsettled Question, Not a Settled One

The law does not end in Umicore. The SLP (Civil) Diary No. 67126 of 2025 has been filed and notice issued to the Revenue. The concordance between the two High Courts is not without weight, but the Supreme Court is entitled to diverge — and may indeed diverge, particularly on the component of SGST, which neither High Court addresses. Corporates remain suspended in uncertainty: there is nothing statutorily preventing the passing of credit state-wise with the business, but no mechanism by law currently permitting it other than a manual, court-driven workaround, and currently only at the level of CGST and IGST, which may come about only after years of litigation. Every cross-border amalgamation bearing credit remains vulnerable to rejection under Rule 41, or to that portion of the Circular it intends to nullify, unless the Circular is amended or retracted.

VI. Conclusion

The issue is not really about a field on a form. It is an allocation problem born of two genuine tensions in Indian GST: that credit should flow down the chain in a smooth, uncluttered way, and that a federal structure must ensure states don't lose significant economic interest in their revenues. This is a question for the Council and Parliament, not for writ determination. Till either Rule 41 is amended or Umicore is considered by the Supreme Court, drafters of any future cross-border structure will find this a legal risk — one that can be reduced with skilful drafting, but never eliminated from the structure altogether.