SCN to merged company

[Bhavesh Suthar]

Company ABC has been merged with Company XYZ. Can SCN be issued to ABC post the merger?

[KASTURI SETHI]

Relevant extract of Section 378 ZN (14) of the Company Act

(14) The amalgamation, merger or division of companies under the foregoing sub-sections shall not in any manner whatsoever affect the pre-existing rights or obligations and any legal proceedings that might have been continued or commenced by or against any erstwhile company before the amalgamation, merger or division, may be continued or commenced by, or against, the concerned resulting company, or merged company, as the case may be.

Hence SCN can be issued to  ABC.

[Shilpi Jain]

Section 85 is relevant in this case

Liability in case of transfer of business.

85. (1) Where a taxable person, liable to pay tax under this Act, transfers his business in whole or in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever, the taxable person and the person to whom the business is so transferred shall, jointly and severally, be liable wholly or to the extent of such transfer, to pay the tax, interest or any penalty due from the taxable person upto the time of such transfer, whether such tax, interest or penalty has been determined before such transfer, but has remained unpaid or is determined thereafter.

[KASTURI SETHI]

Dear Querist,

This is also worth reading. Before merger both companies are distinct persons.

Section 87 of CGST ACT, 2017 effective from 1.7.17 

SECTION 87. Liability in case of amalgamation or merger of companies. — (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.

[Sadanand Bulbule]

Dear querist

Experts' clarification is on the right side. You may go with it.

[Sadanand Bulbule]

Dear all

It is pertinent to note the following:

It is documented in the Legal and Constitutional history of India (first published in 1984) authored by Hon’ble Justice M. Rama Jois that, since 3rd Century liability always follows with the transfer of property. Meaning, the assets and liabilities go together in the given circumstances. There is no scope for “cherry-picking” by the transferee. So the same ratio has been adopted in almost all the relevant statutes in changed terms. Both Section 85 & 87 of the CGST Act comprise the said principle.

 

[Amit Agrawal]

My understanding of the factual position from the query: Company ABC has been merged with Company XYZ, resultant Co. (i.e. post-merger) is either third Co. or XYZ and thereby, ABC become non-existent. 

If my above understanding of the factual position is correct, Dept. cannot issue SCN upon ABC post-merger as ABC does not legally exist as on date of issuance of the SCN. And such SCN has to be issued upon resultant Co. post merger (which is either third Co. or XYZ, as per facts of merger involved). 

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

[KASTURI SETHI]

The fact of merger cannot obliterate or extinguish the rights and liabilities of the transferor company---------CESTAT Bangalore in the case of LANCO INDUSTRIES LTD. - 2007 (11) TMI 147 - CESTAT, BANGALORE

[Pradeep Reddy Unnathi Partners]

ABC will loose its existence after merger, therefore SCN cannot be issued to ABC.

Issuance of SCN to XYZ is as good as issuance to erstwhile ABC. Typically, department issues to SCN to resultant entity i.e. XYZ with the phrase " formerly ABC"

[KASTURI SETHI]

There is no ambiguity or confusion in the CGST Act and Company Act. Otherwise also the phrase , 'formerly known as' is misfit here.

Disclaimer : These are my personal views and meant for education purpose only and not meant for any court proceedings. 

[Amit Agrawal]

This is in continuation of my earliest post above:

Relevant extract of Section 378 ZN (14) of the Company Act:

(14) The amalgamation, merger or division of companies under the foregoing sub-sections shall not in any manner whatsoever affect the pre-existing rights or obligations and any legal proceedings that might have been continued or commenced by or against any erstwhile company before the amalgamation, merger or division, may be continued or commenced by, or against, the concerned resulting company, or merged company, as the case may be.

Hence, SCN can not be issued to  ABC being 'non-existent' as on date of issuance of such SCN in my humble view. Such SCN has to be issued against the concerned resulting company, or merged company (i.e. XYZ or third Co. as the case may be). 

And none of GST provisions (including Section 85 & 87 of the CGST Act, 2017) contradict above position of law. 

Though not directly on the point under discussion here, one may refer to discussion we had under Issue ID: 117994 (specially, my post at Sr. No. 12 there) bearing subject-line as 'SCN & Order-in-Original issued after death of the assesse. Whether recovery can be initiated by department ?' to get a broader picture. 

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

AI Summary

Merger liability: pre-existing tax obligations persist and enforcement targets the successor or jointly liable transferee.
Whether a show-cause notice can be issued to a transferor after merger depends on statutory continuity of liabilities: company law preserves pre-existing rights and obligations and allows legal proceedings to be continued by or against the resulting company. GST rules make transferor and transferee jointly and severally liable for liabilities attributable to transferred business and treat constituent companies as distinct for certain interim purposes, so enforcement and registration considerations determine whether proceedings target the successor entity or the transferee.