Sec 87 – Liability in case of amalgamation or merger of companies

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Sec 87 – Liability in case of amalgamation or merger of companies 2017-04-14T01:48:50+00:00

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  • Adarsh MadrechaAdarsh Madrecha
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    (1) When two or more companies are amalgamated or merged in pursuance of an order of court or of Tribunal or otherwise 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.

    Priya MadrechaPriya Madrecha
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    87.1    Introduction
    This section deals with tax liability on transactions between the effective date and date of order (Tribunal/Court) in case of amalgamation or merger of companies.
    87.2    Analysis
    (i)    In cases of amalgamation or merger of two or more companies by virtue of an order passed by Tribunal/Court/otherwise., the following two crucial dates are relevant, –
    —     Date from which the amalgamation/merger is effective;
    —     Date of the order pursuant to which the amalgamation/merger takes place;
    (ii)    Normally, by virtue of the said order the transactions of supply of goods and/or services inter-se the companies merged/amalgamated between two dates would get nullified as they would become one entity from the effective date (and not from the date of the order).
    (iii)    However, for the purposes of GST, by virtue of this provision, such transactions would continue to be treated as one of supply by one entity and receipt by the other, viz., all provisions of this law would equally apply as if the amalgamation or merger had not taken place and both the entities continue as two different taxable persons. Till the date of order of amalgamation / merger, those companies shall be treated as distinct companies and should discharge their respective tax liabilities.
    (iv)    Thus, this provision would eclipse the order of the Court/Tribunal and its legal effect for the limited purposes of GST law.
    (v)    It provides that wherever necessary, the registration certificates of the said companies would stand cancelled with effect from the date of the said order.
    87.3    Comparative analysis with the present regime
    This is comparable to most of the State level VAT laws, wherein the sale of goods between such entities (between the effective date of merger / amalgamation and the date of the order) will be treated as sale by one entity and purchase by the other. Such transactions will continue to be liable to tax as if the merger or amalgamation had not taken place and both the entities continue as two different entities.
    87.4    MCQ:
    Q1. When two or more companies are amalgamated, the liability to pay tax on supplies between the effective date of amalgamation order and date of amalgamation order would be on –  (a) Transferee;
    (b)    Respective companies;
    (c)    Any one of the companies; (d)     None of the above.
    Ans: (d) Respective Companies.

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