Transfer of ITC in case of business transfer.

Tikona Infinet (P.) Ltd. vs. State of U.P.

High Court of Allahabad

Writ Tax No. 859 of 2023

Category: Input Tax Credit (ITC)

Date of Judgment: July 25, 2023

Relevant Section: Section 18(3) of CGST Act, 2017; Rule 41 of CGST Rules, 2017

Facts of the Case [¶2–4]

1. The petitioner, Tikona Infinet (P.) Ltd., entered into a Business Transfer Agreement dated 17.08.2017 with M/s Tikona Digital Network Pvt. Ltd. (TDA), whereby the entire business including unutilized ITC of ₹3,13,68,997/- was transferred. [¶3]
2. As per Section 18(3) of CGST Act read with Rule 41 of CGST Rules, the transfer of unutilized ITC should have been effected via Form GST ITC-02. However, the functionality for filing ITC-02 was unavailable on the GST Portal at the relevant time. [¶3]
3. The petitioner manually adjusted the ITC through Form GSTR-3B and informed the jurisdictional officer. No response was received. [¶4]
4. After five years, the petitioner received a SCN dated 28.02.2023 demanding reversal of ITC of ₹2,88,35,905.60/- along with interest and penalty. [¶4]
5. Despite submitting a detailed reply on 13.03.2023, the Deputy Commissioner confirmed the demand vide order dated 17.04.2023 without properly considering the objections. [¶4–5]

Questions in Consideration [¶2, ¶5, ¶7]

• Whether the manual adjustment and availment of ITC by the petitioner due to non-availability of Form ITC-02 on the GST portal was legally valid?
• Whether the Deputy Commissioner was justified in rejecting the petitioner’s ITC claim and confirming demand without proper consideration of the petitioner’s objections?

Observations of the Court [¶5–8]

1. The High Court noted that the petitioner’s objections were not considered adequately, and the impugned order was passed on technical grounds. [¶5]
2. The Court acknowledged that the GST portal was in its initial implementation stage and Form ITC-02 was unavailable, thereby creating genuine difficulty in compliance. [¶7]
3. The Court held that mere non-availability of a statutory form due to system glitches cannot be grounds to deny substantial rights like ITC, particularly when no alternative or support was extended by authorities. [¶8]

Judgment of the Court [¶8–9]

• The High Court set aside the order dated 17.04.2023 passed by the Deputy Commissioner and directed the department to pass a fresh order after considering the petitioner’s objections and giving an opportunity for personal hearing. [¶8]
• The writ petition was disposed of with a direction to the petitioner to cooperate in further proceedings. [¶9–10]

Between Fine Lines

The High Court recognized that technical lapses on the GST portal in its early phase cannot override the substantive rights of taxpayers. It held that denial of ITC due to non-availability of Form ITC-02 was unjustified and ordered reconsideration, emphasizing due process and opportunity of hearing.

Summary of Referred Cases