Corporate restructuring in India is rarely a simple exercise in corporate law. While the National Company Law Tribunal (NCLT) oversees the structural and capital modifications of a transaction, the indirect tax department closely monitors the movement of assets, liabilities, and tax credits. A prime example of this dual-regulatory dance is the recent first-motion approval by the Allahabad Bench of the NCLT concerning the Scheme of Arrangement between Magnum Ventures Limited (the Demerged Company) and Magnum Paperz Limited (the Resulting Company).
By separating its legacy paper manufacturing operations from its premium hospitality business, Magnum Ventures aims to unlock distinct management focus and independent capital structures. However, for tax professionals and corporate strategists, the true complexity of this transaction lies in the seamless transition of tax liabilities, the preservation of accumulated Input Tax Credits (ITC), and the mitigation of GST-related transition risks.
Deconstructing the Restructuring Scheme
Under the proposed Scheme of Arrangement, framed under Sections 230 and 232 read with Section 66 of the Companies Act, 2013, Magnum Ventures will transfer its entire “Paper Business” as a going concern to its wholly owned subsidiary, Magnum Paperz Limited (incorporated on September 22, 2025). The residual “Hotel Business”—which features a certified five-star, all-vegetarian hotel operating under the “Country Inn & Suites by Radisson” brand in Sahibabad, Ghaziabad—will remain within Magnum Ventures Limited.
To align the capital structures of both entities post-demerger, the scheme outlines a proportionate reduction of Magnum Ventures’ share capital and the cancellation of Magnum Paperz’ pre-scheme share capital. The approved share exchange ratio provides equity shareholders of Magnum Ventures with two new equity shares of ₹10 each in Magnum Paperz for every ten equity shares held in the parent company. Additionally, preference shareholders will receive nine new compulsorily redeemable preference shares of ₹100 each in Magnum Paperz for every ten held in the demerged entity.
The GST Dimension: Transfer of Business as a “Going Concern”
From an indirect tax perspective, the classification of the demerger is the most critical factor determining taxability. Under the Goods and Services Tax (GST) framework, the transfer of a business as a “going concern” (either in its entirety or an independent part thereof) enjoys a vital exemption. According to Notification No. 12/2017-Central Tax (Rate), services by way of transfer of a going concern are exempt from GST.
For Magnum Ventures, the transfer of the paper manufacturing facilities, along with all related assets, liabilities, contracts, licenses, and employees, fits squarely within the definition of an independent going concern. Had this transaction been structured as a piecemeal sale of individual assets (such as machinery, land, or inventory), it would have attracted standard GST rates on each asset category, triggering a massive upfront tax liability and complicating cash flow dynamics. By ensuring the paper business is transferred intact, the applicants safeguard the transaction from immediate GST levies.
The Mechanics of Input Tax Credit (ITC) Apportionment
One of the most complex areas of compliance during a corporate split is the transfer of unutilized Input Tax Credit. Section 18(3) of the Central Goods and Services Tax (CGST) Act, 2017, read with Rule 41 of the CGST Rules, 2017, provides the legal mechanism for this transfer. When a registered person demerses or restructures their business, the unutilized ITC can be transferred to the resulting entity, provided there is a specific provision for the transfer of liabilities in the scheme.
To execute this transfer successfully, the following compliance steps must be meticulously followed:
- Asset-Based Apportionment: Under Rule 41(1) of the CGST Rules, the ITC must be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme. Identifying and valuing the exact assets of the paper business versus the hotel business is therefore not just a corporate finance requirement, but a statutory GST mandate.
- Filing Form GST ITC-02: Magnum Ventures (the demerged entity) must submit Form GST ITC-02 on the common GST portal, accompanied by a certificate from a practicing Chartered Accountant or Cost Accountant. This certificate must verify that the demerger has been registered with a specific provision for the transfer of liabilities.
- Acceptance by the Resulting Company: Magnum Paperz Limited must log into the GST portal and accept the details submitted by the demerged company to successfully pull the ITC into its electronic credit ledger.
Failing to execute these steps with precision can lead to tax blocking, audit objections, and severe working capital stress. To navigate such structural transitions smoothly, businesses must stay updated on the evolving regulatory landscape, as discussed in Reimagining GST Compliance.
Registration, Appointed Dates, and Transition Compliance
The NCLT order notes that the “Appointed Date” of the scheme will align with the “Effective Date.” In the realm of GST, the date on which the transfer becomes legally binding determines which entity is liable for tax compliance. Until the effective date is reached and the NCLT issues its final order, Magnum Ventures remains solely responsible for filing returns and paying GST on the paper business’s operations.
Post-effective date, Magnum Paperz Limited must fully assume compliance responsibilities. This transition requires:
- New GST Registrations: Magnum Paperz must ensure its GST registrations in Uttar Pradesh and other relevant jurisdictions are fully operational and updated to reflect the newly acquired manufacturing units.
- Vendor and Customer Contract Transition: All existing supply chain contracts, purchase orders, and billing structures must be transitioned to the new corporate entity. Any mismatch in invoices raised during the transition period could lead to ITC loss for customers or compliance defaults for the resulting company.
- Dispute and Audit Resolution: Any outstanding GST disputes or audits relating to the paper business must be clearly apportioned. If the scheme dictates that past liabilities transfer to the resulting company, Magnum Paperz must be prepared to defend these legacy positions. For insights into managing such transactional disputes, review our analysis on Streamlining Indirect Tax Friction.
NCLT Directives and Next Steps
Following the first-motion application, the NCLT Allahabad Bench has directed separate meetings of Magnum Ventures’ equity shareholders, secured non-convertible debenture holders, secured creditors, and unsecured creditors to be held via video conferencing on Friday, November 20, 2026. Conversely, the Tribunal dispensed with the meeting of Magnum Ventures’ preference shareholder, as well as the meetings of Magnum Paperz’ equity shareholders and sole unsecured creditor, due to the submission of consent affidavits.
While the corporate legal team prepares for the voting process and the subsequent second-motion petition, the tax and accounting divisions must work parallelly. Ensuring that valuation reports (such as the one prepared by Ms. Mallika Goel) and fairness opinions (issued by 3Dimension Capital Services Limited) are perfectly aligned with both Companies Act valuations and GST asset-apportionment ratios will be key to securing a hassle-free transition.
Frequently Asked Questions
Magnum Ventures Limited operates a Paper Business (manufacturing paper and paper products from wastepaper at Sahibabad, Ghaziabad) and a Hotel Business (owning and operating Country Inn & Suites by Radisson, a certified five-star all-vegetarian hotel in Sahibabad, Ghaziabad).
The resulting company, Magnum Paperz Limited, will issue and allot two new equity shares of face value of INR 10 each for every ten equity shares of face value of INR 10 each held in Magnum Ventures Limited.
The Board of Directors of both applicant companies considered and unanimously approved the proposed Scheme of Arrangement in their respective meetings held on February 27, 2026.
The valuation exercise was carried out by Ms. Mallika Goel, a Registered Valuer (Securities or Financial Assets) registered with the Insolvency and Bankruptcy Board of India (IBBI).
The Tribunal dispensed with the meeting of the preference shareholder of Magnum Ventures Limited, as well as the meetings of the equity shareholders and sole unsecured creditor of Magnum Paperz Limited, based on their submitted consent affidavits.
Mr. Gaurav Mahajan has been appointed as the common Chairperson. The separate meetings of Magnum Ventures' equity shareholders, secured non-convertible debenture holders, secured creditors, and unsecured creditors are scheduled to take place on Friday, November 20, 2026.
