Liability in Amalgamation, Merger and Company Liquidation under GST

Understand Liability in Amalgamation, Merger and Company Liquidation

Key rules to remember

Section 87: merger with retrospective effect

Supplies between merging companies (from the appointed date to the date of the order) → included in each company's aggregate turnover → tax payable by each

Applies where the order takes effect from a date earlier than the order date and two or more of the merging companies have supplies to or from each other. It applies even if the merger is by court, Tribunal or otherwise.

Section 88: intimation by liquidator

Liquidator's appointment date + 30 days = last date to intimate the Commissioner

Count from the date he becomes appointed. Intimation goes to the Commissioner.

Section 88: Commissioner's notice

Date of receipt of intimation + 3 months = last date for the Commissioner to notify the amount

The three months run from receipt of the intimation, not from the date of appointment. The amount is what the Commissioner thinks sufficient for tax, interest and penalty, whether now payable or likely to become payable.

Section 88: liquidator's duty and exposure

Set aside the notified amount before distributing assets; if assets are parted with without doing so, the liquidator can be held personally liable

State this in plain words. Do not invent limits or sub-section numbers.

How to solve Liability in Amalgamation, Merger and Company Liquidation questions

1. 1Identify the event: merger or amalgamation of companies, or winding up of a company. This decides Section 87 or Section 88.
2. 2Note the dates. For a merger, find the appointed date and the date of the order. For liquidation, find the date of the liquidator's appointment and the date the Commissioner received intimation.
3. 3For a merger, check the two conditions: the order takes effect from a date earlier than the order date, and two or more of the merging companies had supplies to or from each other in that gap.
4. 4If both hold, include each supply in the aggregate turnover of the respective company and state that each company is liable to tax on it, whatever the order says.
5. 5For liquidation, compute the 30-day intimation limit and the three-month limit for the Commissioner's notice. Check whether the liquidator complied.
6. 6Check what the liquidator did with the assets. If he distributed them without setting aside the notified amount, say he can be held personally liable.
7. 7Write the conclusion with the amount and the person liable. Mention Section 89 only if directors of a private company are in the facts.

Quickest way: Two-line trigger method

Common mistakes in Liability in Amalgamation, Merger and Company Liquidation

• Quoting Section 86 for amalgamation.

  Students use the section number from a search or from memory of the chapter order.

  Fix: Memorise the sequence: 85 transfer of business, 86 agents and principals, 87 amalgamation or merger, 88 liquidation, 89 directors of private company.

• Treating supplies between merging companies as ignorable because they merged.

  Students follow accounting logic where intra-group dealings are eliminated.

  Fix: Under Section 87 the supplies between the companies in the retrospective gap remain supplies. They are included in each company's aggregate turnover and taxed.

• Applying Section 87 when the merger order is effective from its own date.

  Students skip the condition about an earlier effective date.

  Fix: Check that the order takes effect from a date before the date of the order. Without that retrospective gap there are no gap supplies to talk about.

• Counting the Commissioner's three months from the liquidator's appointment.

  Students merge the two time limits into one.

  Fix: The 30 days run from appointment of the liquidator. The three months run from the date the Commissioner receives the intimation.

• Saying the liquidator pays tax out of his own pocket in every case.

  Students overstate personal liability.

  Fix: The liquidator is exposed to personal liability when he parts with assets without setting aside the notified amount. If he follows the procedure, the amount is met from the company's assets.

• Bringing directors' liability into a Section 88 answer by default.

  Students link all liquidation questions to directors.

  Fix: Directors of a private company are dealt with under Section 89. Mention it only if the facts ask about directors, and keep it as a separate point.

Worked examples