COMPLIANCE UNDER GST ON BUSINESS RECONSTITUTION

COMPLIANCE UNDER GST ON BUSINESS RECONSTITUTION

In case of transactions of amalgamation of merger, one needs to take note of the fact that there are two different dates, namely, the effective date from which the scheme would be given effect (which has to be indicated while filing the application for the amalgamation or merger as filed before NCLT)  and, second, the date of order, when the scheme is approved by the Court or NCLT. Generally, the effective date precedes the order date and under the Income Tax Act,  while till the time the order is received parties to the amalgamation/merger proceedings  continue to have separate existence, the receipt of  the order requires them to re-file their ITR as the company(s) which has merged or amalgamated into the other company has ceased to exist.

However, it is not so under the GST regime. Section 87(2) specifically provides that the parties to the scheme shall continue to be treated as distinct legal entities till the date or receipt of the order, and the registration certificate of the amalgamated or merged company shall be cancelled only with effect from the date of the order approving the scheme by the Court /NCLT. Relevant portion of section 87.2 is reproduced below:-

87.1 When two or more companies are amalgamated or merged in pursuance of an order of court or of Tribunal or other wise  and the order is to take effect from a date earlier to the date of the order and any two or more  of such companies have supplied or received any goods or services or both to or from each other during  the period commencing on the date from which the order takes effect till the date of the order,  then such transactions of supply and receipt shall be included in the turnover of supply or receipt of the respective companies and they  shall be liable to pay tax accordingly.

2) Notwithstanding anything contained in the said order, for the purposes of this Act,  the said two or more companies shall be treated as distinct companies for the period up to the date of the said order and the registration certificates of the said companies shall be cancelled with effect from the date of the said order.

Meaning thereby, till the date of the order approving the scheme is received, each of the companies party to the scheme shall continue to comply with the various provisions of the law, including filing of periodic tax returns, annual returns and reconciliation statements prescribed u/s 35.

Similarly, section 22(4) provides that - Notwithstanding anything  contained in sub-section(1) and (3) in a case of transfer pursuant to sanction of scheme or an arrangement for  amalgamation or as the case may be, demerger of two or more companies pursuant to an order of a High Court, Tribunal or otherwise, the transferee shall be liable to be registered, with effect from the date on which the Registrar of Companies issues a certificate of incorporation giving effect to such order of the High Court or Tribunal.  

Therefore, any new company which comes into existence in pursuance of an order of a Court or NCLT, as the case may be, shall be liable to get registered with effect from the date on which the Registrar of Companies issues a certificate of incorporation giving effect to such order.

Hence, in case of amalgamation/merger, one needs to take the registration aspect very seriously, to the extent that upon receipt of approval of the scheme, the application for cancellation of certificate of registration of the company which ceases to exist in view of the order and the application for fresh registration of the company which comes into existence, is done within the prescribed time limits, and all future supplies are made/received under the registration certificate of the continuing  company/new company and the use of the GSTIN of the Company which ceases to exist is discontinued with immediate effect.