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Company Status Strike Off: Importance and Consequences

TRAN 1 & TRAN 2 – Transition of old input credit to GST Regime GST is a comprehensive indirect tax on the manufacture, sale, and consumption of goods and services. It's a single tax that replaced multiple indirect taxes in countries like India. Tran 1 and Tran 2 in GST "Tran 1" and "Tran 2" refer to specific forms that were part of the transition provisions when GST was first implemented in July 2017. Tran 1: This form was designed for businesses to claim credit for taxes paid before the implementation of GST. It was essential for those who had stock that was taxed under the previous regime (like VAT, Excise, Service Tax) and was unsold at the time of transitioning to GST. By filling out the Tran 1 form, businesses could claim credit for this pre-GST tax, preventing double taxation. Tran 2: This form was relevant for traders who didn’t have proper invoices for their stock during the transition. It allowed them to claim a provisional tax credit in the GST regime. This was particularly useful for businesses that had stock purchased without paying the earlier tax regime or without proper documentation. Things to keep in mind under GST Tran When dealing with the transition provisions under GST (Goods and Services Tax), specifically relating to TRAN-1 and TRAN-2 forms, there are several critical points businesses and tax professionals need to keep in mind. These points are essential for ensuring compliance and making the most of the transitional provisions: 1. Eligibility for Credit Understand the eligibility criteria for claiming input tax credit (ITC) for taxes paid under the previous regime (VAT, Excise, Service Tax). Ensure that the goods or services in question are eligible for credit under the GST regime. 2. Documentation Maintain proper documentation, including invoices and receipts, which substantiate the claims made in the TRAN forms. Ensure that the invoices are GST-compliant and reflect the correct details necessary for claiming ITC. 3. Deadlines and Timelines Be aware of the deadlines for filing TRAN-1 and TRAN-2. Missing these deadlines could result in the loss of credit. Stay updated with any extensions or modifications in the filing dates announced by the GST Council. 4. Accurate and Truthful Declaration Ensure that all information provided in the TRAN forms is accurate and truthful. Inaccuracies can lead to penalties, interest, or even prosecution. Reconcile the credit claimed in TRAN forms with the financial statements and tax returns of the previous tax regime. 5. Technical Aspects of Filing Familiarize yourself with the technical process of filing TRAN-1 and TRAN-2 on the GST portal. Check for any system requirements or specific formats needed for uploading data. 6. Transitional Provisions Understand the specific transitional provisions applicable to your business sector. Evaluate how these provisions impact your tax liabilities and credit availabilities. 7. Consultation and Advisory Seek advice from GST experts or consultants, especially in complex scenarios or where large amounts of credit are involved. Regularly check updates or circulars released by the GST Council or tax authorities. 8. Audit and Compliance Checks Be prepared for audits or scrutiny from tax authorities regarding the transitional credit claimed. Maintain a clear audit trail that supports the claims made in your TRAN forms. Steps to File TRAN-1 or TRAN-2 Form on the GST Portal • GST Portal Access: Visit the official GST portal (gst.gov.in). • Log in using your credentials (GSTIN/Username and password). • Navigate to the Form: Once logged in, go to the 'Services' menu. • Select 'Returns Dashboard' or a similar option where you can find the list of returns/forms. • Select the Financial Year and Return Filing Period: Choose the relevant financial year and the return filing period for which you want to file the TRAN-1 or TRAN-2. • Open the Form: Find the TRAN-1 or TRAN-2 form in the list of available forms. • Click on the 'Prepare Online' or 'Prepare Offline' option, depending on your preference. • Filling the Form: If you choose 'Prepare Online', fill in the details directly on the portal. • For 'Prepare Offline', download the form, fill it out, and then upload it back to the portal. • Ensure all mandatory fields are accurately completed. This may include details of taxes paid under the previous regime, the amount of credit being carried forward, etc. • Upload Supporting Documents (If required): Some forms may require uploading of supporting documents. Check if this applies and upload the necessary files. • Verification and Submission: Verify the details entered in the form. • Complete the declaration and choose the authorized signatory. • Sign the form digitally using a Digital Signature Certificate (DSC) or EVC (Electronic Verification Code). • Submit the Form: After signing, submit the form. • You should receive an acknowledgment, and the form's status will be updated. Points to Remember • Accuracy: Ensure all data entered is accurate to avoid issues with credit claims or compliance. • Deadlines: Be aware of the submission deadlines for the specific form. • Documentation: Keep all relevant documents handy for reference and potential future audits. Conclusion To claim input tax credit (ITC) on former stocks under the GST regime, the balance of closing stock ruled by the business as of July 1, 2017 must be shown in TRAN – 1. Form TRAN -2 Would be submitted by a dealer or trader who has registered for GST but was previously unregistered.
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What is Company Strike off?

The Registrar of Companies (ROC) oversees the dissolution of an entity, leading to the company’s status being struck off. This process involves the removal of the company from the official register of corporations. Once initiated, the company undergoes significant changes, ceasing its previous business activities. The government takes possession of the company’s assets to settle outstanding obligations, and proceeds from asset sales are distributed among shareholders.

Reinstating a company’s status after being struck off is not possible. However, it is legally permissible to establish a new company using the same name, enabling the resumption of operations under a new name.

Types of Company Strike-Off

· Voluntary Strike Off

The term “Company Status Strike Off” refers to a legal process that directors can initiate to officially close down their business. This voluntary procedure removes the business from the official list of registered companies, effectively ending its legal existence. It is applicable across the board, catering to various entities, ranging from small limited companies to large public enterprises. Voluntarily striking off a company is suitable for businesses that have stopped operations, become defunct, or are no longer fit for active trading. In such cases, other procedures like liquidation or administration would be more appropriate to address their specific circumstances.

Strike Off by ROC

The Business Status Strike Off procedure implemented by the Registrar of Companies (ROC) in India serves the purpose of dissolving a business or erasing it from official records. This process is applicable nationwide, covering all states and union territories, albeit with minor variations. It initiates the closure of dormant or closed firms and is particularly streamlined for efficiency. Once the strike-off order is issued, the business is effectively eradicated from the Registrar’s records, signaling the cessation of its existence.

Following the strike-off, directors bear responsibility for any incurred liabilities during the business’s operational phase. The assets are then distributed among creditors as per the instructions outlined in the strike-off order. This straightforward process offers a swift and uncomplicated means to shut down non-operational businesses. Moreover, it presents a financially sensible alternative to the more complex and time-consuming court-ordered corporate liquidation.

Importance of Maintaining Active Company Status

  1. Enhancing Credibility: Actively engaging in business operations bolsters credibility with investors, partners, and clients.
  2. Ensuring Regulatory Adherence: Sustaining compliance with regulations is crucial to avoid fines or the risk of dissolution.
  3. Facilitating Financial Opportunities: A continual active status qualifies businesses for funding, contracts, and collaborative opportunities in the commercial sphere.
  4. Enabling Financial Support: Active businesses have access to loans, banking services, and support from financial institutions.
  5. Showcasing Stability in the Market: Maintaining an active presence demonstrates stability, contributing to a favorable standing in the marketplace.
  6. Exhibiting Commitment to Workforce Well-being: Active participation in business operations reflects dedication to the staff, fostering a positive workplace culture and retaining valuable talent.

Common Reasons for Company Strike Off

  • In the event of prolonged inactivity, termination from the company could be imminent.
  • Engaging in dishonest or unlawful activities might lead to the removal of a business from official records.
  • Failure to submit necessary documentation or fees to the regulatory body may result in the business being considered for strike-off.
  • A corporation on the brink of ceasing operations, with no assets or liabilities, may be eligible for strike-off status.

Consequences of Company Strike Off

Asset Seizure: When a company is removed from the official registry, any assets it possesses may be confiscated and sold to settle outstanding debts or obligations. This can lead to significant financial setbacks for the company and its shareholders.

Reputation Damage: The dissolution of a corporation can tarnish its image, making it challenging to regain the trust of stakeholders, suppliers, and customers. This reputational harm can severely impact the company’s ability to operate, resulting in reduced sales and profits.

Personal Liability for Directors: The directors of a dissolved company may be personally held accountable for its liabilities, a concept known as “lifting the corporate veil.” Directors must be mindful of potential responsibilities and take necessary precautions to protect their personal assets.

Loss of Legal Recognition: When a company is struck off, it loses its legal status and is no longer able to engage in contracts or business activities. This legal impediment can disrupt corporate operations and pose challenges for the company’s continuity.

Difficulty in Restoration: Reviving a dissolved corporation can be a complex process often requiring legal assistance. The company may be required to settle outstanding debts before reinstatement, placing a substantial financial burden on it.

Documentation Required for Strike Off Process

  1. Indemnity bonds, duly notarized and valid for all directors (in the prescribed Form STK 3).
  2. A financial statement, prepared and endorsed by a chartered accountant, detailing the company’s assets and liabilities.
  3. Sworn affidavits (in Form STK 4), individually signed by each director of the company.
  4. Certified true copies (CTC) of the Special Resolution, bearing the signatures of all directors of the company.
  5. Disclosure of any current legal proceedings related to the business, as per a submitted declaration.

Conclusion:

Company Strike Off is a vital legal procedure allowing businesses to formally close, either voluntarily or enforced by the Registrar of Companies. It streamlines closure for non-operational businesses or efficiently dissolves dormant ones. Maintaining active status is crucial for credibility, regulatory adherence, financial opportunities, and market stability. Failure may lead to strike-off, with consequences like asset seizure, reputation damage, director liability, loss of legal recognition, and difficulty in restoration. Required documentation includes indemnity bonds, financial statements, affidavits, special resolutions, and legal proceedings disclosure. Business owners must understand the implications for informed closure decisions, emphasizing diligence and legal compliance.

If you have any questions or uncertainties, feel free to share them with companysuggestion, and our team of experts will provide guidance and support.

CS Deepa Sharma

Author is a associate member of the Institute of Company Secretaries of India (ICSI) and apart from that she holds LLB degree and Master in Commerce degree from Rajasthan University. She is having over 5 years of experience as a Practicing Company Secretary. She is well versed with all the matters related to Company Law and ROC matters, RERA , statutory reporting, Compliance Report and Corporate Governance. She is having good exposure in maintaining secretarial records as prescribed under Companies Act, 2013.


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