Amalgamation - GST Liability and implications

[Rohit K]

Sir,

'A' company has been amalgamated into 'B' company in the year 24 August 2020 and the order has been issued by NCLT. Since 'A' Company had some issues (COVID period) in the transfer of some company licenses, they continued to conduct business and file GST returns after amalgamation.

As per the section 87(2) of CGST Act, '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.'

As per the above section, it is understood that the GST registration of 'A' company is cancelled wef 24 August 2020. But the company 'A' is still conducting business and issuing invoices and fililing returns.

1. Whether the ITC claimed by the Company 'A' is to be disallowed ?

2. Whether the tax liability discharged by the Company 'A' is valid?

[Ganeshan Kalyani]

Sir, you mentioned that GSTIN is cancelled and in such a case the GST return could not have been filed. Please check the facts.

[KASTURI SETHI]

Sh.Naresh G Ji,

After cancellation how the returns were allowed to be filed ? Something missing.

Anyhow you can take somewhat cue from the following case laws which pertain to cancellation of registration on entirely different grounds even then these case laws can help you. Also read Section 29(3) of the CGST Act regarding liability after the date of cancellation.

2023 (6) TMI 533 - CALCUTTA HIGH COURT - M/S. GARGOTRADERS VERSUS THE JOINT COMMISSIONER, COMMERCIAL TAXES (STATE TAX) & ORS.

2023 (4) TMI 1123 - GUJARAT HIGH COURT - ALLYSSUM INFRA VERSUS UNION OF INDIA

[Rohit K]

Sir,

My bad ! I have quoted it wrongly.

Once amalgamation order is issued ... It is deemed that the registration is cancelled as per section 87(2)... But the taxpayer has not filed cancellation of his gstin after amalgation order and continued doing business until his licence is completely transferred.

He has availed itc during this period and paid taxes.

So

Whether the ITC claimed by the Company 'A' is to be disallowed ? Whether the tax liability discharged by the Company 'A' is valid?

[Shilpi Jain]

Legally the transactions are of the merged company.

Can you tell us how the accounting is done in the books. Whether the sales and purchases are accounted in the books of A?

In case there is to be any demand it would be on Company B for non-payment of GST on the sales that it has booked in its BoAs (assuming answer to the above query is B). In that case it can be stated that the supply has suffered tax already once and that no further demand should be made.

ITC in A's hands could be disputed in that case stating that it is not the inputs / input services relating to A's business but of B's business. In this case it can be stated that outward liability is paid by A so it is relating to A's business.

But all this in litigation will have to travel up to Tribunal or courts to settle.

Accounting is key.

[Rohit K]

Hi Madam,

The accounting is done in the Company 'A'. Sales are made by 'A' and purchases made by 'A' and ITC availed by 'A'.

Further, when 'A' files GSTR-1, ITC is passed on to other GSTINs which is legally incorrect because his registration has become invalid post amalgamation.

[Amit Agrawal]

Issue raised can lead of series of litigations / disputes on various counts and same should have been avoided being contrary to law.

But, it is very clear that after 24.08.2020 (i.e. date of order), under various law/s of the land, Co. A does not exist any more and same has become part & parcel of Co. B. In other words, there is no difference between A & B after 24.08.2020 and both become only one & same entity.

Section 87 (2) deals with supplies which has have happened between A & B prior to date of order by treating them as distinct person for past period and treat date of cancellation of A's registration only as on date of order i.e. 24.08.2020 (i.e. even if order is to take effect from a date earlier to the date of the order).

And hence, w.e.f. 24.08.2020, old gst registration of Co. 'A' is nothing but another / separate gst registration of Co. B, even when it is wrongly using old PAN & old GSTN, in view of subject amalgamation order itself.

Looked from above perspective, entire lapses becometechnical in nature(i.e. using old PAN & old GSTN, instead of applying for fresh fresh GSTN in name of Co. B). And hence, same should not lead to denial of ITC or other serious consequences in my view.

But, such grounds / reasoning may not be accepted by Revenue and disputes on multiple grounds - arising of these lapses - will be settled at tribunal or above level.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Just to add to my last post:

Dept. cannot raise any SCN on Co. A against transactions carried (i.e. supplies made, ITC availed etc.) w.e.f. 24.08.2020 using old GSTN of Co. A.

Such SCN can be raised only on Co. B as Co. A no longer exist under law.

And if so, it becomes more clear why various lapsed are 'technical in nature' & NOT 'serious' contravention of various legal provisions.

Having said that, such lapses may lead of serious charges from Revenue and process of defending oneself judicially can be costly, painful and cumbersome. Hence, I have stated - at the beginning - that such lapses should have been avoided.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Sh.Naresh G. Ji,

After agreement with the experts, I suggest as under :-

1. In order to prove your bona fides and save interest and penalty, you should disclose all the facts in writing to jurisdictional GST Range Officer with a copy to the Deputy /Asst.Commssioner, In-charge CGST Division and also discuss in person with the Range Officer.

2. Proper procedure has not followed and no serious lapse of revenue loss is here.

3. Section 87(2) talks of ' registration shall be cancelled' from the date of order of NCLT.. It is not deemed cancellation. What is the actual date of cancellation of registration by the department ?

4. You need regularisation of the whole sequence of events/lapses and nothing else.

5. Plus point is that the element of mala fide with an intent to evade tax is absent. Case laws on this issue pertaining to pre-GST era are available and these case laws will be helpful in getting regularisation.

6. Penalty is not imposable for procedural lapses under Section 126 of CGST Act.

AI Summary

Amalgamation Confusion: Company 'A' Faces ITC Claim Issues Post-Merger; Experts Advise Disclosure to Avoid Penalties A company, 'A', was amalgamated into 'B' on August 24, 2020, per an NCLT order, leading to the cancellation of 'A's GST registration. Despite this, 'A' continued business operations, filed GST returns, and claimed Input Tax Credit (ITC). The discussion addresses whether 'A's ITC claims and tax liabilities are valid post-amalgamation. Experts suggest these actions may lead to litigation, as 'A' should not exist post-amalgamation. They recommend disclosing the situation to GST authorities to avoid penalties, emphasizing that procedural lapses occurred without intent to evade taxes. The situation requires regularization to resolve compliance issues.