Date: July 2025
Jurisdiction: Authority for Advance Rulings (AAR), Andhra Pradesh
Case: ANDHRA PRADESH STATE FIBRENET LIMITED
Introduction
In a significant clarification that could ease operational headaches for corporates undergoing mergers, the Andhra Pradesh Authority for Advance Ruling (AAR) has ruled that Input Tax Credit (ITC) can be transferred between distinct persons (branches in different states) in the event of amalgamation or merger under a court or tribunal’s directive. This paves the way for inter-state ITC migration, which was earlier under interpretational grey zones.
Background: The ITC Transfer Dilemma in Mergers
Under the Goods and Services Tax (GST) regime, businesses with registrations in multiple states are considered distinct persons under Section 25(4) of the CGST Act, 2017.
In cases of corporate mergers or amalgamations, questions have routinely emerged about whether the unutilized ITC of a merging unit in one state can be transferred to the counterpart in another state, particularly when both are registered separately.
Prior to this ruling, the absence of an explicit mechanism in the law caused compliance uncertainty, with authorities differing on whether ITC transfer across GSTINs in different states violated the distinct-person principle.
Key Ruling Highlights
The case in question involved Andhra Pradesh State Fibernet Ltd, which was merging with another government undertaking under court order. The applicant sought clarity on:
Whether ITC lying in the electronic credit ledger of one GSTIN (in one state) could be transferred to another GSTIN (in a different state) after merger.
Whether this transfer would be treated as taxable supply between distinct persons.
The AAR ruled that:
No embargo exists under the CGST Act for such ITC transfer between amalgamating companies located in different states.
The transfer is valid provided the amalgamation is under a court or tribunal order and follows the conditions laid down under Section 18(3) and Rule 41 of the CGST Rules.
The transaction does not amount to a supply, and hence no GST is applicable on such ITC migration.
Implications for Industry
This decision is a welcome relief for companies engaged in multi-state operations and undergoing corporate restructuring. It ensures that:
Valuable ITC does not lapse due to procedural ambiguity.
Seamless credit flow is maintained within the merged entity.
It brings uniformity in GST treatment of amalgamations, irrespective of state boundaries.
This ruling also signals to the GST Council and policymakers the need to consider clearer legal mechanisms for ITC transfers across state-registered entities post-merger, possibly through rule amendments or circulars.
Expert Views
CA Manish Mishra, Indirect Tax Advisor:
“This ruling will give confidence to large corporate houses planning group-level restructuring across state lines. The interpretation rightly aligns with the intent of seamless credit under GST.”
CA Manoj Kumar Singh, M&A Tax Specialist:
“The decision settles a long-pending ambiguity. However, businesses must ensure compliance with documentary conditions and timelines mentioned under Rule 41 to avoid litigation later.”
Conclusion
The AAR’s clarity marks a pro-business interpretation of GST law, especially beneficial for PSU mergers, conglomerate consolidations, and digital infrastructure firms operating pan-India. While individual AAR rulings are binding only on the applicant, this judgment could shape future departmental assessments and encourage more companies to seek similar relief.
