TREATMENT UNDER GST IN CASE OF AMALGAMATION AND MERGER Section 87 of CGST Act, 2017 Liability to pay taxes in case of Amalgamation or Demerger
Section 87(1) :- If 2 or more companies are amalgamated or merged in pursuance of the order of the Court or tribunal or otherwise and the order of amalgamation or merger will take effect from a date earlier to the date of the order. If there is any supply of goods or services or both take place between any two or more of such companies between the date of effect of such order and date of the order, such supply and receipt will be included in the turnover or receipt of the respective companies and they shall be liable to pay taxes.
Let’s Understand with the example
Amalgamation takes place between Abc Pvt Ltd. And Xyz Pvt Ltd. In pursuance of the order of the Court and such order is passed on 10th July 2020 but this order will be effective since 10th July 2019. Abc Pvt Ltd. Supplied goods of Rs. 500000 to Xyz pvt ltd on 15th September 2019. That supply has been made between 10th July 2019 and 10th July 2020. Such Supply will be considered as turnover of Abc Pvt Ltd and receipt of Goods of Xyz Pvt ltd. And accordingly, ABC Pvt Ltd. And Xyz Pvt Ltd will be liable to pay tax.
Section 87(2):– For the purpose of this Act, the said 2 or more companies shall be treated as distinct companies for the period upto the date of order and the registration certificate shall be cancelled with effect from the date of said order.
Example: – In the above example the date of order is 10th July 2020 so Abc Pvt Ltd and Xyz Pvt Ltd shall be considered as distinct person till the date of order ie. 10th July 2020.
Requirement of Registration Under GST Act,
Further Section 22(4) of CGST Act relating to person liable for registration thus: –
Notwithstanding anything contained in sub-sections (1) and (3), in a case of transfer pursuant to sanction of a 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.
Read Section 22(4) of CGST Act with Section 87(2) of CGST Act.
As per section 87(2) of CGST Act, if amalgamation or demerger takes place in pursuance of order of the court or tribunal or otherwise, then the registration certificate of both the companies shall be cancelled from the date of order, thereafter transferee company shall be liable to be registered but as per Section 22(4) of CGST Act, the transferee company shall be liable to registered be w.e.f the date on which ROC issues certificate of incorporation giving effect to such order.
It means both the companies shall be considered distinct person until ROC issues a certificate of incorporation giving effect to such order not from the date of order passed by the court or tribunal.
Provision of ITC in case of Amalgamation or Demerger
Section 18(4) of CGST Act 2017
Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.
Thus, when constitution of business is changed on account of merger and amalgamation, transferor is allowed to transfer its unutilized input tax credit lying in the credit ledger to the amalgamated or demerged in a manner prescribed under Rule 41 of CGST Rules 2017. However, if there are no specific provisions for transfer of liabilities, no ITC can be transferred.
The manner of transfer of ITC on account of merger or amalgamation has been prescribed under Rule 41 of CGST Rules 2017 as follows: –
1. The registered person/transferor whose business is to be merged or amalgamated shall furnish the details of such merger or amalgamation in FORM GST ITC 02, electronically, along with a request for transfer of unutilized input tax credit lying in his credit ledger to the transferee.
2. The transferor shall also submit a copy of a certificate issued by a practicing-chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.
3. The transferee shall, on the common portal, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.
4. The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account.
ITC 02 FORM
Certificate under Section 18(3) of the CGST Act Independent Practitioner’s Certificate under the State Goods and Services Tax Act, 2017 (in short “SGST Act”) and the Central Goods and Services Tax Act, 2017 (in short “CGST Act”) in terms of Section 18(3) of the said Acts and Rule 41(2) of the Rules issued under such Acts
Name and Address of the Applicant
1. This Certificate is issued in accordance with the terms of our agreement dated
2. M/s. _______________ (hereinafter referred to as the “applicant’ or ‘transferor’) is a registered person vide GSTIN…and is having its principal place of business at_______________________________________ in the State of____________ . The Applicant has the following additional places of business in the State/s of
The Registration of the principal place of business and the other places of business in the State of _____ is applied on _______ within the stipulated time of 30 days from the date of becoming liable to obtain registration
3. In terms of Section 18(3) of the CGST and SGST Acts, where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains un-utilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in the manner prescribed in the CGST / SGST Rules, 2017 by declaring the same, electronically, on the common portal in Form GST ITC-02.
Rule 41(2) of the CGST Rules provides that the transferor shall also submit a copy of a certificate issued by a practicing chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities
4. The applicant has sold / merged / de-merged / amalgamated / leased / transferred [strike whichever not applicable] its business to M/s ___________ GSTIN: xxxxxxxx (hereinafter referred to as “Transferee”) vide amalgamation / merger Order No…dated……… passed by……….. Guide to CA Certificates in GST 24 GST & Indirect Taxes Committee OR Business Transfer Agreement dated. with a specific provision for the transfer
of all liabilities vide clause …. of the said document.
Management’s responsibility for the Statement:
5. The preparation of the Statement is the responsibility of the Management of…………………………… [Name of the applicant] including the preparation and maintenance of all accounting and other relevant supporting records and documents. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the Statement and applying an appropriate basis of preparation; and making estimates that are reasonable in the circumstances.
The management is also responsible for ensuring that the applicant complies with the requirements of CGST / SGST Act and CGST / SGST Rules.
6. Pursuant to the requirements of Section 18(3) of the SGST / CGST Act read with Rule 41(2) of the CGST / SGST Rules, 2017, it is our responsibility to examine the books of accounts and other relevant documents / records of the applicant and to provide a reasonable assurance that the amounts declared in the Form GST ITC-02 have been accurately drawn from the books of accounts and other relevant documents / records of the applicant (Transferor) and is claimed as input tax credit; We conducted our examination of the Statement in accordance with the Guidance Note on Reports or Certificates for Special Purposes (Revised 2016) issued by the Institute of Chartered Accountants of India. The Guidance Note requires that we comply with the ethical requirements of the Code of Ethics issued by the Institute of Chartered Accountants of India. We have complied with the applicable requirements of the Standard on Quality Control (SQC) 1, Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements.
7. We have examined the books of accounts and other relevant documents / records of the applicant for the purpose of Section 18(3) of the CGST Act and SGST Act and Rule 41(2) of CGST Rules.
8. Based on our examination as above and the information and explanation given to us, in our opinion, the applicant (transferor) is entitled to transfer the input tax credit aggregating Rs (detailed below) to the
transferee as declared in Form GST ITC02 and the particulars declared by him in GSTR- ITC -01 are true and correct and in conformity with the books of accounts and other relevant documents/ records maintained under the CGST Act and the SGST Act.
9. This certificate is addressed and provided to the……………………….. of the applicant solely for the purpose of submission to (name of the authority) pursuant to the requirements of Section 18(3) of the SGST / CGST Act read with Rule 41(2) of the CGST / SGST Rules, 2017 and should not be used by any other person or for any other purpose. Accordingly, we do not accept or assume any liability or duty of care for any other purpose or to any other person to whom this certificate is shown or into whose hands it may come without our prior consent in writing.
For XYZ and Co._________,
Place of Signature: _____________________
Chartered Accountants Firm’s Registration Number
Signature(Name of the Member Signing the Cert.)
Designation and Membership No.