Bombay HC's Umicore ruling  an extended explainer enriched with PwC analysis

The Goa bench of the Bombay High Court (Umicore Autocat India Pvt Ltd v. Union of India, WP 463/2024, judgment dated 10 July 2025) has resolved a thorny GST issue: whether Central GST (CGST) and Integrated GST (IGST) credits sitting in a transferor's electronic credit ledger (ECL) can move across State lines on an amalgamation.

1. What triggered the dispute?

• Two GSTINs, two States

  • Transferor: Umicore Anandeya India Pvt Ltd, Goa

  • Transferee: Umicore Autocat India Pvt Ltd, Maharashtra

• Amalgamation sanctioned by NCLT-Mumbai on 26 May 2020 with appointed date 1 April 2019. The Goa entity stood dissolved; liabilities migrated to Maharashtra.

• Credit left behind in Goa ECL: IGST ₹369,586 and CGST ₹35,284,105; SGST ₹139,285 was voluntarily forgone to avoid State-revenue complications.

• Form ITC-02 roadblock: GSTN's business rule allowed filings only when transferor and transferee share the same State code. The portal threw error F2619: "Transferee and transferor should be of the same State/UT."

2. What the statute actually says

1. Section 18(3), CGST Act – permits transfer of "unutilised input tax credit" when there is a change in constitution (sale, merger, demerger, amalgamation …) with transfer of liabilities.

2. Rule 41, CGST Rules – prescribes Form ITC-02; it is silent on State-matching.

3. Section 25(4) – treats each State registration as a distinct person, but does not speak to ITC mobility after amalgamation.

The court held that if Parliament intended a geographic restriction, it would have said so in §18(3) itself. A portal validation screen cannot write in a condition that the statute and rules omit.

3. High Court's four key findings

1. No legal bar on interstate CGST/IGST transfer
   – CGST and IGST are Union imposts; shifting them from Goa to Maharashtra is revenue-neutral for the Centre.

2. SGST left untouched
   – Because SGST belongs to the originating State, the petitioner waived its ₹139k SGST; the court therefore made no precedent on SGST portability.

3. Tech cannot trump law
   – GSTN's incapacity is "no ground to deny a substantive statutory right." Officers must effect a manual debit/credit until the system is fixed.

4. Systemic remedy mandated
   – GST Council and GSTN have six weeks to redesign ITC-02 so that different-State GSTINs can be selected, with backend settlement safeguards.

4. Where the current system fails (step-by-step)

The breakdown occurs in a predictable sequence that traps genuine business reorganisations:

Stage 1: Initial filing attempt – The transferor company uploads Form ITC-02 and enters the transferee's GSTIN. At this point, the portal automatically cross-checks the first two digits of both GSTINs, which represent the State code.

Stage 2: Validation failure – When the State codes differ (as they inevitably do in cross-State mergers), the system immediately displays validation error F2619: "Transferee and transferor should be of the same State/UT." No further processing occurs.

Stage 3: Credit paralysis – With the electronic route blocked, the unutilised ITC remains stranded in the transferor's ledger. This forces companies to either make cash payments for new tax liabilities (effectively doubling their tax burden) or pursue expensive litigation to unlock their own credits.

Stage 4: Manual workaround (post-litigation) – Only after obtaining a court order can taxpayers access relief through a cumbersome manual process. Jurisdictional officers must first debit the transferor's ECL in the originating State, then coordinate with their counterparts in the destination State via email or phone. The receiving officers then credit the transferee's ledger using back-office utilities, while both sides update their settlement files to maintain audit trails.

This entire manual chain should become obsolete once GSTN implements the court-ordered upgrade, allowing ITC-02 to automatically post cross-State debit/credit entries for CGST/IGST while flagging SGST as non-transferable.

5. Impact Landscape

• Corporate treasury – Faster access to ₹crores of central tax credit improves merger cash flows.

• Compliance teams – Expect a revised ITC-02 form and possibly a new advisory replacing Circular 133/03/2020-GST.

• GSTN developers – Need to relax State-matching rule, add inter-State credit settlement logic, and expose audit trails in Form GSTR-2B/9C.

• Tax administrations – Must train officers to process manual transfers in the interim and reconcile Centre-State settlement files.

6. Open Questions

1. Will SGST ever be portable?
   – Any future relaxation would require a political consensus because it shifts revenue between States; the court expressly sidestepped this.

2. Retroactive effect?
   – Judgment is declaratory; other taxpayers with similar fact patterns can rely on it, but they may still need individual writs until GSTN is patched.

3. Interaction with demergers and hive-offs
   – Rule 41 already prescribes asset-ratio apportionment for demergers. The Umicore logic should extend to such reorganisations, but specifics may differ.

Concluding Note

Umicore underscores a core GST promise: credits follow the business, not the postcode. By ordering GSTN to modernise its plumbing, the Bombay High Court has cleared the way for cross-State corporate restructurings to unlock Central tax credits without courtroom detours—delivering, at last, a more seamless national GST market.