Simplified GST Series- Section 85-94/CGST ACT 2017– Article analyses Section 85- Liability in case of Transfer of Business, Section 86- Liability of Agent and Principal, Section 87- Liability in case of amalgamation or merger of companies, Section 88- Liability in case of company in liquidation, Section 89- Liability of directors of private company, Section 90- Liability of partners of firm to pay tax, Section 91- Liability of guardians, trustees etc. and Section 92- Liability of Courts of Wards, etc.
Page Contents
- Section 85- Liability in case of Transfer of Business
- Section 86- Liability of Agent and Principal
- Section 87- Liability in case of amalgamation or merger of companies
- Section 88- Liability in case of company in liquidation-
- Section 89- Liability of directors of private company
- Section 90- Liability of partners of firm to pay tax-
- Section 91- Liability of guardians, trustees etc.
- Section 92- Liability of Courts of Wards, etc
- Section 93-Special Provisions regarding liability to pay tax, interest or penalty in certain cases.
- Section 94- Liability in other cases-
Section 85- Liability in case of Transfer of Business
(1) Where a taxable person, liable to pay tax under this Act, transfers his business in whole or in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever, the taxable person and the person to whom the business is so transferred shall, jointly and severally, be liable wholly or to the extent of such transfer, to pay the tax, interest or any penalty due from the taxable person up to the time of such transfer, whether such tax, interest or penalty has been determined before such transfer, but has remained unpaid or is determined thereafter.
(2) Where the transferee of a business referred to in subsection (1) carries on such business either in his own name or in some other name, he shall be liable to pay tax on the supply of goods or services or both effected by him with effect from the date of such transfer and shall, if he is a registered person under this Act, apply within the prescribed time for amendment of his certificate of registration.
Analysis- Liability arising prior to transfer:
The provision applies when a taxable person who is liable to pay tax transfers his
business either wholly or in part, which could be by way of:
- Sale
- Gift
- Lease
- Leave and license
- Hire or
- In any other manner
Tax liability: Both transferor and transferee will be jointly and severally liable for payment of
taxes, interest or penalty due upto the time of transfer of business (wholly or partly).
Liability arising post transfer : It is the ‘recovery’ of liability in respect of tax, interest and / or penalty which may be determined subsequent to transfer (by follow of process against transferor) and which relates to the period will be the liability of the transferee of business.
Section 86- Liability of Agent and Principal
Where an agent supplies or receives any taxable goods on behalf of his principal, such agent and his principal shall, jointly and severally, be liable to pay the tax payable on such goods under this Act.
Analysis- Under the GST law, in cases where –
— Taxable Goods are supplied by agent on behalf of principal; or
— Taxable Goods are procured by agent on behalf of principal;
the agent is primarily liable for tax. However, by virtue of this provision, both agent and principal, will be jointly and severally made liable to pay for tax payable on such supplies.
This section is meant to provide a recourse to the Government against either of them and not necessarily only upon default by the principal obligor.
Section 87- Liability in case of amalgamation or merger of companies
(1) When two or more companies are amalgamated or merged in pursuance of an order of court or of Tribunal or otherwise and the order is to take effect from a date earlier to the date of the order and any two or more of such companies have supplied or received any goods or services or both to or from each other during the period commencing on the date from which the order takes effect till the date of the order, then such transactions of supply and receipt shall be included in the turnover of supply or receipt of the respective companies and they shall be liable to tax accordingly.
(2) Notwithstanding anything contained in the said order, for all purposes of this Act, the said two or more companies shall be treated as distinct companies for the period up to the date of the said order and the registration certificates of the said companies shall be cancelled, with effect from the date of the said order.
Analysis: In cases of amalgamation or merger of two or more companies by virtue of an order passed by Tribunal/Court/otherwise, the following two crucial dates are relevant, –
— Date from / on which the amalgamation/merger is effective;
— Date of the order pursuant to which the amalgamation/merger takes place;
- For the purposes of GST, by virtue of this provision, such transactions would continue to be treated as supply by one entity and receipt by the other, viz., all the provisions of this law would equally apply as if the amalgamation or merger had not taken place and both the entities continue as two different taxable persons. Till the date of order of amalgamation / merger, those companies shall be treated as distinct companies and should discharge their respective tax liabilities.
- It provides that wherever necessary, the registration certificates of the said companies would stand cancelled with effect from the date of the said order.
Section 88- Liability in case of company in liquidation-
(1) When any company is being wound up whether under the orders of a court or
Tribunal or otherwise, every person appointed as receiver of any assets of a company (hereinafter referred to as the “liquidator”), shall, within thirty days after his appointment, give intimation of his appointment to the Commissioner.
(2) The Commissioner shall, after making such inquiry or calling for such information as he may deem fit, notify the liquidator within three months from the date on which he receives intimation of the appointment of the liquidator, the amount which in the opinion of the Commissioner would be sufficient to provide for any tax, interest or penalty which is then, or is likely thereafter to become, payable by the company.
(3) When any private company is wound up and any tax, interest or penalty determined under this Act on the company for any period, whether before or in the course of orafter its liquidation, cannot be recovered, then every person who was a director ofsuch company at any time during the period for which the tax was due shall, jointlyand severally, be liable for the payment of such tax, interest or penalty, unless heproves to the satisfaction of the Commissioner that such non-recovery cannot beattributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.
Analysis- Every person appointed as receiver / liquidator needs to give intimation of his appointment to the Commissioner within 30 days of his appointment.
> Within 3 months from the date of such intimation, the Commissioner, after making necessary enquiry or calling of information, will notify the liquidator to set apart a sum of money that would be sufficient to discharge, in his opinion, the amount of tax, interest and penalty payable by the company.
> When a private company is not able to clear its dues, then every person who was the director at any time during the period, for which tax is due, would be liable jointly and severally to pay the dues.
> However, if any director proves to the satisfaction of the Commissioner that such nonrecovery is not due to his gross neglect, misfeasance or breach of duty, the liability would not arise in the hands of such director.
Section 89- Liability of directors of private company
(1) Notwithstanding anything contained in the Companies Act, 2013 (18 of 2013), where any tax, interest or penalty due from a private company in respect of any supply of goods or services or both for any period cannot be recovered, then, every person who was a director of the private company during such period shall, jointly and severally, be liable for the payment of such tax, interest or penalty unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.
(2) Where a private company is converted into a public company and the tax, interest or penalty in respect of any supply of goods or services or both for any period during which such company was a private company cannot be recovered before such conversion, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax, interest or penalty in respect of such supply of goods or services or both of such private company.
Provided that nothing contained in this sub-section shall apply to any personal penalty imposed on such director.
Analysis- If the tax, interest or penalty were not paid by a private company in relation to any supply of goods and / or services for any period, then every Director of such private company during such period will be liable to pay such dues.
> The liability of the Director will be relaxed only when, he proves that such non-recovery of dues is not because of his gross negligence, misfeasance or breach of duty in relation to the affairs of the company.
> However, when a private company is converted to public company, then no such recovery of old dues can be made from the person(s) who were directors of the private limited company before such conversion.
> However, an exception has been carved out for the above provision -this is not applicable to personal penalty which can be imposed on such director.
Section 90- Liability of partners of firm to pay tax-
Notwithstanding any contract to the contrary and any other law for time being in force, where any firm is liable to pay any tax, interest or penalty under this Act, the firm and each of the partners of the firm shall jointly and severally, be liable for such payment:
Provided that where any partner retires from the firm, he or the firm, shall intimate the date of retirement of the said partner to the Commissioner by a notice in that behalf in writing and such partner shall be liable to pay tax, interest or penalty due up to the date of his retirement whether determined or not, on that date:
Provided further that if no such intimation is given within one month from the date of retirement, the liability of such partner under the first proviso shall continue until the date on which such intimation is received by the Commissioner.
Analysis- Where a partnership firm is liable to pay any tax, interest or penalty, all the partners of such firm will be jointly and severally liable to pay such amounts.
> If any of the partners retire, then such partner or the firm shall intimate the Commissioner by a notice in writing within one month from the date of retirement.
> In such cases, the retiring partner shall be liable to pay tax, interest and penalty, if any upto the date of his retirement (whether determined or not prior to retirement).
> However, where no such intimation is given by the partner to the Commissioner within 1 month from retirement date, the liability of such retired partner will continue till the date on which the intimation is received by the Commissioner.
The provision will be equally applicable for LLPs.
Section 91- Liability of guardians, trustees etc.
Where the business in respect of which any tax, interest or penalty is payable under this Act is carried on by any guardian, trustee or agent of a minor or other incapacitated person on behalf of and for the benefit of such minor or other incapacitated person, the tax, interest or penalty shall be levied upon and recoverable from such guardian, trustee or agent in like manner and to the same extent as it would be determined and recoverable from any such minor or other incapacitated person, as if he were a major or capacitated person and as if he were conducting the business himself, and all the provisions of this Act or the rules made thereunder shall apply accordingly.
Analysis- In respect of business carried on, on behalf of, or for the benefit of a minor or incapacitated person (by the following persons who carry on such business), then such person will be liable to pay tax, interest or penalty:
> Guardian; or
> Trustee; or
> Agent
- The dues are recoverable from the guardian, trustee or agent in respect of business of the minor or other incapacitated person by treating them as major or capacitated person, who is conducting the business for himself.
Section 92- Liability of Courts of Wards, etc
Where the estate or any portion of the estate of a taxable person owning a business in respect of which any tax, interest or penalty is payable under this Act is under the control of the Court of Wards, the Administrator General, the Official Trustee or any receiver or manager (including any person, whatever be his designation, who in fact manages the business) appointed by or under any order of a court, the tax, interest or penalty shall be levied upon and be recoverable from such Court of Wards, Administrator General, Official Trustee, receiver or manager, in like manner and to the same extent as it would be determined and be recoverable from the taxable person as if he were conducting the business himself, and all the provisions of this Act or the rules made thereunder shall apply accordingly.
Analysis- In respect of any tax, interest or penalty relating to a business of the taxable person whose estate or part thereof is under the control of the following persons, the said persons will be liable to pay dues under this Act, as if they were themselves conducting the business as taxable person/s:
(i) Administrator general or
(ii) Official trustee or
(iii) Any receiver or manager or
(iv) Including any person, whatever be his designation, who in fact actually manages the Business.
Section 93-Special Provisions regarding liability to pay tax, interest or penalty in certain cases.
(1) Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, where a person, liable to pay tax, interest or penalty under this Act, dies, then-
(a) if a business carried on by the person is continued after his death by his legal representative or any other person, such legal representative or other person, shall be liable to pay tax, interest or penalty due from such person under this Act, and
b) if the business carried on by the person is discontinued, whether before or after his death, his legal representative shall be liable to pay, out of the estate of the deceased, to the extent to which the estate is capable of meeting the charge, the tax, penalty or interest due from such person under this Act,-
whether such tax, interest or penalty has been determined before his death but has remained unpaid or is determined after his death.
(2) Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, where a taxable person, liable to pay tax, interest or penalty under this Act, is a Hindu Undivided Family or an association of persons and the property of the Hindu Undivided Family or the association of persons is partitioned amongst the various members or groups of members, then, each member or group of members shall, jointly and severally, be liable to pay the tax, interest or penalty due from the taxableperson under this Act upto the time of the partition whether such tax, penalty or interest has been determined before partition but has remained unpaid or is determined after the partition.
(3) Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, where a taxable person, liable to pay tax, interest or penalty under this Act, is a firm, and the firm is dissolved, then every person who was a partner shall, jointly and severally, be liable to pay the tax, interest or penalty due from the firm under this Act up to the time of dissolution whether such tax, interest or penalty has been determined before the dissolution, but has remained unpaid or is determined after dissolution.
(4) Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, where a taxable person liable to pay tax, interest or penalty under this Act,-
(a) is the guardian of a ward on whose behalf the business is carried on by the guardian, or
(b) is a trustee who carries on the business under a trust for a beneficiary.
then if the guardianship or trust is terminated, the ward or the beneficiary shall be liable to pay the tax, interest or penalty due from the taxable person upto the time of the termination of the guardianship or trust, whether such tax, interest or penalty has been determined before the termination of guardianship or trust but has remained unpaid or is determined thereafter.
Analysis- Death of person (individual)-
(i) If a person (an individual) who is liable to pay tax dies: –
(a) In case of continuation of business: the legal representative or the any other person who carries on the business after his death is liable to pay tax, interest, penalty or any other due which is due from the deceased person; or
(b) In case of discontinuation of business before or after his death: the legal representative is liable to pay the tax, interest, penalty or any other dues to the government, from and to the extent of the estate of the deceased.
(ii) The legal representative or any other person as the case may be is liable to pay the tax, interest or penalty whether-
(a) It has been determined before his death but has remained unpaid or
(b) It has been determined after his death.
Partition of HUF or AOP- In case of a HUF or AOP property is partitioned between the member or group of members then the liability to pay tax, interest or penalty
— Is on each member or group of members (jointly and severally) who got a portion in that property.
— The member or the group of members is/are liable only upto the time of partition Whether such
-
- Tax, interest and penalty has been determined before partition but has remained unpaid or
- is determined after such partition.
Dissolution of firm
(i) In case the firm is dissolved-
— Every person who was a partner upto the time of dissolution is jointly and severally liable to pay the tax, interest or penalty.
— The person who was a partner is liable to pay tax even if it is
-
- determined before dissolution but not paid or
- determined after dissolution.
— The provision applicable for partnership firm would equally apply for LLP as well.
Section 94- Liability in other cases-
1. In case of discontinuance of business, the firm or AOP or HUF, the liability of the firm/AOP/HUF shall be determined (upto the date of discontinuance) as if no such discontinuance had taken place.
2. Every partner of such firm or member of such AOP or HUF at the time of discontinuance shall be jointly and severally liable for payment of tax, interest and penalty imposed.
3. In case of change in the constitution of the firm or association, the partners and members who existed before reconstitution shall be liable jointly and severally to pay tax, interest or penalty for any period upto the date of reconstitution. This will operate even if the retirement was intimated to the commissioner in terms of Section 90.
4. Discontinuance includes dissolution of firm or association and partition in case of HUF.
5. This provision, the way it applies to a partnership firm will apply to an LLP as well.
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