No, you cannot participate in state counseling if you join an AIQ seat and then go for upgradation.

A Supreme Court ruling prohibits candidates from participating in subsequent counseling rounds (like state counseling) after joining a seat allotted in Round 2 of AIQ/Deemed Universities.

Once you join (reporting and completing admission formalities) an AIQ allotted seat, it signifies forfeiture of your seat. You cannot then participate in further counseling rounds, including state counseling.

If you accept and join the allotted AIQ GMC seat, you're essentially confirming your admission to that college. You can, however, attempt upgradation within the AIQ counseling itself. This means trying to get a better college within the 15% All India Quota seats. But, even if you don't get upgraded and remain in the initially allotted AIQ GMC seat, you've used your chance and cannot participate in state counseling.

I hope it helps!