Section 87 of CGST explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 87 of the CGST Act, 2017 provides that when two or more companies are amalgamated or merged under a court or tribunal order whose effective date is earlier than the order date, any supply of goods or services made between the companies during the interim period (from the effective date up to the date of the order) is treated as a supply by/to each company and taxed, and the companies are treated as distinct companies until the date of the order, from which their registrations are cancelled.
What Section 87 Says — In Plain English
Court and tribunal mergers often have an "appointed date" (say 1 April) that is earlier than the "order date" (say 30 June) on which the merger is actually sanctioned. Company law treats the entities as merged from the appointed date. But between those two dates the companies were, in reality, separate registered persons trading with each other. Section 87 preserves that reality for GST: the interim inter-company supplies remain taxable, and the companies stay distinct for GST until the order date.
Without this provision, merging companies could argue that transactions during the interim window were merely "internal" transfers within a single merged entity and therefore not supplies. Section 87 closes that gap, ensuring interim tax is not lost to a retrospective merger date. It does so by two devices working together: sub-section (1) which brings the interim inter-company supplies into each company\'s turnover, and sub-section (2) which fixes their status as distinct persons until the order date and then cancels their registrations from that date.
A useful way to read Section 87 is that GST follows economic and registration reality, not the legal fiction of retrospective merger. For all other purposes company law may treat the entities as one from the appointed date, but for the specific, limited purpose of taxing what actually happened between two separately registered persons in the interim, they are kept apart.
Clause / Sub-section Breakdown
| Provision | Effect |
|---|---|
| Section 87(1) | Where two or more companies are amalgamated or merged by an order of court, Tribunal or otherwise, and the order takes effect from a date earlier than the date of the order, then supplies of goods or services between such companies from the effective date till the date of the order are included in the turnover of supply/receipt of the respective companies and taxed accordingly. |
| Section 87(2) | Notwithstanding anything in the amalgamation order, the companies are treated as distinct companies for the period up to the date of the order, and their registration certificates are cancelled with effect from the date of the order. |
Applicability & Scope
The section applies to court/Tribunal-sanctioned amalgamations and mergers where there is a gap between the retrospective "appointed date" (effective date) and the actual "order date". During this interim window the transferor and transferee are, in company law, treated as merged from the appointed date, but for GST the law preserves that they operated as separate registered persons who made real supplies to each other. Those inter-company supplies are therefore taxable, and the entities remain distinct until the order date, when registrations are cancelled.
The provision is not confined to court-driven schemes alone — it uses the words "by an order of a court, Tribunal or otherwise" — so it covers NCLT-sanctioned schemes of amalgamation as well as any statutory merger that carries a retrospective effective date. What it does not touch is a merger where the order date and the effective date coincide, because then there is no interim window and no separate registered existence to preserve. The section is engaged only when there is a genuine gap between the two dates during which the companies actually transacted with each other.
Worked Examples
Example 1 — supply of goods during the interim. Company X and Company Y file a scheme of merger. The Tribunal passes its order on 30 June 2026, but the scheme\'s appointed date is 1 April 2026. Between 1 April and 30 June 2026, Company X supplied goods worth Rs. 20,00,000 to Company Y and raised GST invoices. Under Section 87 those inter-company supplies during 1 April to 30 June are taxed as normal supplies made by X to Y, and X and Y are treated as distinct companies for that period. Their GST registrations are cancelled from 30 June 2026, from which point the merged entity operates under a single registration.
Example 2 — services during the interim. Suppose in the same window Company Y provided management services worth Rs. 4,00,000 to Company X, on which GST of Rs. 72,000 applies. Because Section 87(1) covers supplies of goods or services between the merging companies during the interim period, that Rs. 72,000 is properly taxed and included in Y\'s outward turnover and X\'s inward turnover for that period — it cannot be written off as an internal cost of the merged entity.
Step-by-Step in Practice
- Identify the appointed date and the order date from the scheme and the court/Tribunal order, and delineate the interim period between them.
- For each entity, keep separate GST records, invoices and returns for the interim period as if no merger had happened.
- Report interim inter-company supplies (goods and services) in the respective outward and inward turnovers and discharge GST.
- Reconcile input tax credit claimed on the interim inter-company supplies at each entity.
- From the order date, cancel the registrations of the amalgamating companies and operate the merged entity under a single registration, transferring unutilised ITC under Section 18(3) and Rule 41.
Common Mistakes & Practical Notes
- Treating interim inter-company transactions as "internal" and non-taxable — Section 87 makes them taxable supplies.
- Cancelling registrations from the appointed date rather than the order date.
- Failing to include interim supplies in each company\'s turnover, causing turnover and ITC mismatches later.
- Overlooking that the rule covers both goods and services exchanged during the interim window.
- Confusing interim taxability (Section 87) with the separate mechanics of ITC transfer on merger (Section 18(3) and Rule 41).
Timelines & Related Sections
The critical timeline in Section 87 is the interim period — from the effective/appointed date to the date of the order. Inter-company supplies within that window are taxable; the companies are distinct until the order date; and registration cancellation takes effect from the order date, not the appointed date. There is no separate joint-and-several liability created by Section 87 (unlike Sections 85, 86, 90); it is essentially a taxability-and-registration rule for the merger interim.
Section 87 should be read with Section 18(3) and Rule 41 (transfer of unutilised ITC on merger/amalgamation), Section 22 (registration on transfer including on account of amalgamation), and Section 85 (liability on transfer of business). It sits in Chapter XVI alongside Sections 88 and 89 dealing with companies in liquidation and directors of private companies.
Recent Amendments & Context
Section 87 has not been substantively amended since 2017. Its relevance has increased as NCLT-sanctioned mergers commonly carry retrospective appointed dates. The interaction of Section 87 with ITC transfer has been clarified through Rule 41 procedures (filing FORM GST ITC-02 to move unutilised credit to the transferee) and departmental guidance on how to report the merged entity\'s registration. Businesses undertaking scheme-based mergers should time their GST filings carefully around the order date to avoid mismatches during the interim period.