An NCLT-approved merger or demerger has significant GST consequences. The transfer of the business as a going concern is exempt from GST, but the transaction triggers the transfer of the input tax credit, the cancellation of the transferor's registration, and the potential continuation of the tax proceedings against the transferee.
The Going Concern Exemption
The transfer of a business as a going concern is exempt from GST under Notification No. 12/2017-Central Tax (Rate). The exemption is available where the business is transferred as a whole, with its assets and liabilities, and the transferee continues to operate the business. An itemised transfer of assets does not qualify for the exemption, and it attracts GST on the individual assets.
The ITC Transfer
Section 18(3) of the CGST Act read with Rule 41 allows the transferor to pass the unutilised input tax credit to the transferee in Form GST ITC-02. The transfer is conditional on the transfer of the liabilities, and the transferee must accept the transfer in the common portal. The Gujarat High Court has held that the ITC cannot be denied merely because the transferor and the transferee are located in different States.
The Registration
The transferor's GST registration must be cancelled, and the transferee must obtain a new registration or amend its existing registration to include the transferred business. The cancellation and the new registration must be coordinated with the NCLT order and the appointed date.
The Proceedings Against the Dissolved Entity
The Bombay High Court has held that once the NCLT sanctions the amalgamation, the transferor company ceases to exist, and any GST proceedings initiated or continued against it are void ab initio. The Andhra Pradesh High Court has also held that GST proceedings against a dissolved company are without jurisdiction. The tax authorities must initiate the proceedings against the transferee company, which steps into the shoes of the transferor.
The Practical Steps
The company must file the ITC-02, cancel the transferor's registration, update the transferee's registration, and transfer the balances. The GST compliance must be coordinated with the NCLT order and the appointed date, and the company must maintain a record of the transfer.
Call to Action
Anuj Desai & Associates advises companies on the GST implications of a merger or demerger—from the going concern exemption and the ITC transfer to the registration changes and the defence against proceedings initiated against a dissolved entity. If you are implementing an NCLT-approved scheme, we can help you manage the GST transition.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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