Amalgamation of companies – supplies during interim period are taxable under GST :
In case of amalgamation of companies, the scheme specifies ‘effective date’ of amalgamation. However, actual date of order of NCLT (earlier High Court) approving amalgamation comes later.
Section 87(1) of CGST Act specifically provides that 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.
As per section 87(2) of CGST Act, notwithstanding anything contained in the said order, for all purposes of CGST 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, where necessary, with effect from the date of the said order.
Earlier controversy – In CST v. ITC Hotels (2012) 34 STT 112 = 1654 (CESTAT), assessee was providing services to its holding company during April 2004 to September 2004. Amalgamation between the holding company and assessee was approved from ‘appointment date’ w.e.f. 1-4-2004.
However, Court order was received later and final order was filed with Registrar of Companies on 23-3- 2005. Assessee filed refund claim in respect of services provided to its holding company during April 2004 to September 2004. It was held that from the appointed date i.e. 1-4-2004, the assessee and its holding company were one and the same entities and hence service provided by it to itself is not liable to service tax. Hence, refund is admissible – same view in CCE v. IOC Ltd. (2012) 34 STT 508 = 17 226 (CESTAT SMB) * Usha International v. CST (2016) 55 GST 171 = 67 360 (CESTAT).
In S Maruthappan v. CCE (2007) 11 STT 456 (CESTAT SMB), a diploma holder engineer was engaged on retainership basis, which was in nature of employment. It was held that service tax can be charged only when transaction is on ‘principal to principal’ basis. This basic requirement is absent and hence demand of service tax is not sustainable.
Registration after merger or amalgamation or scheme – 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 by an order of a High Court, Tribunal or otherwise, the transferee shall be liable to be registered, where required, 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 – section 22(4) of CGST Act.
Transfer of input tax credit on Merger, amalgamation or sale of business – 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 provision for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in the such manner as may be prescribed – section 18(3) of CGST Act.