Section 86 – Liability in Case of Amalgamation or Merger of Companies
Section 86 of CGST Act, 2017 – Liability in Case of Amalgamation or Merger of Companies
Updated on: February 2026 (as applicable till date)
Prepared by: Yours Tax Consultant
1. Objective of Section 86
Section 86 ensures that GST liabilities do not lapse when two or more companies are amalgamated or merged.
It fixes responsibility on the amalgamated or resulting company for tax dues of the transferor companies.
2. Statutory Provision – Section 86
Section 86:
Where two or more companies are amalgamated or merged
in pursuance of an order of a court or tribunal
or otherwise,
the amalgamated or resulting company
shall be liable to pay
any tax, interest or penalty
due from the transferor companies
up to the date of such amalgamation or merger,
whether such dues are determined
before or after the amalgamation or merger.
3. Key Elements of Section 86
- Applies only to companies
- Requires amalgamation or merger
- Liability is statutory and automatic
- Applies even if dues are determined later
4. Nature of Liability under Section 86
Liability under Section 86 is:
- Successor-based liability
- Not dependent on contractual terms
- Enforceable directly against amalgamated company
The tax department need not proceed against the dissolved company.
5. Period for Which Liability Exists
The amalgamated company is liable for:
- All GST dues up to the effective date of merger
- Tax, interest and penalty
Liability covers:
- Adjudicated dues
- Pending proceedings
- Future determinations relating to past period
6. Section 86 vs Section 85
- Section 85: Transfer of business (general)
- Section 86: Merger or amalgamation of companies (specific)
Section 86 applies even without a traditional business transfer agreement.
7. Registration and Compliance Implications
After merger:
- Transferor company’s GST registration is cancelled
- Amalgamated company continues or obtains registration
- Pending returns and liabilities are consolidated
Intimation to GST authorities is mandatory.
8. Practical Examples
- Company A merges into Company B
- GST audit of Company A pending
- Demand raised after merger
In this case, Company B is liable under Section 86.
9. Judicial Principles
Courts have consistently held that:
- Tax dues follow the business entity
- Amalgamated company cannot escape past GST liabilities
- Ignorance of pending proceedings is no defence
10. Due Diligence for Mergers
- Check GST compliance of transferor companies
- Verify pending notices, audits and investigations
- Seek indemnity clauses in scheme of amalgamation
11. Related Provisions
- Section 85 – Transfer of business
- Section 79 – Recovery of tax
- Section 82 – First charge on property
12. Professional Insight
Section 86 makes GST a critical part of merger due diligence. Corporate restructuring may change ownership, but it does not erase tax history. Every merger inherits not only assets, but also GST liabilities.
Disclaimer: This article is prepared based on the CGST Act, Rules, notifications and prevailing legal position as applicable till date. GST liability in merger cases depends on effective date, scheme terms, and statutory provisions.
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