Liability in Certain Cases under GST (Section 85 to 94)

There are liability to pay in certain cases under Section 85 to 94 of Central Goods and Services Tax Act, 2017  which includes Liability in case of Transfer of Business, Liability of Agent and Principal, Liability in case of Amalgamation or Mergers of Companies, Liability in case of company in Liquidation, Liability of Director of Private Company, Liability of Partners of firm to pay Tax, Liability of Guardians, Trustees etc., Liability of court of wards etc., Special provisions regarding liability to pay tax, interest or penalty in certain cases and Liability in certain other cases.

Liability in certain cases under GST (Section 85 to 94)

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 or 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 extend of such transfer, to pay the tax, interest or penalty due from the taxable person upto 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 sub section (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.

Example 1:  ABC Industries, a registered person under GST, has sold whole of its business to XYZ Manufactures, tax, interest or any penalty under GST Law (determined before sale but still unpaid ) is due from ABC Industries upto the time of such transfer. ABC Industries & XYZ Manufacture will be, liable, jointly and severally, wholly or to extent of such transfer to pay above stated amount of tax , interest or penalty.

Example 2: ABC Pvt. Ltd. Crosses threshold of Rs. 20 Lakhs and become liable for registration (i.e., taxable person) in 2^nd feb, 2018. However, it does not take registration for 7 months. Afterwards, it transfers his business to DEF Pvt. Ltd.

ABC Pvt. Ltd. & DEF Pvt. Ltd. Both are, jointly and severally, liable to discharge pre transfer tax liability.

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.

Example 1: let say, ABC Manufactures Ltd. engages Raghav & Sons as an agent to sell goods on its behalf.

Raghav & Sons sells goods to Krishna  Associates on behalf of ABC manufacture Ltd.

ABC Manufactures Ltd.  & Raghav & Sons shall, jointly and severally, be liable to pay GST payable on such goods.

Section 87 : Liability in case of Amalgamation or Mergers of Companies

(1) When two or more companies are amalgamated or merged in pursuance of an order or court or of Tribunal or otherwise and the order is to take effect from a date earlier to 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 date of the order, then such transaction of supply and receipt shall be included in the turnover of supply or receipt of the respective companies and they shall be liable to pay tax accordingly.

(2) Notwithstanding anything contained in the said order, for the purpose of this act, the said two or more companies shall be treated as distinct companies for the period upto the date of the said order and, the registration certificate of said companies shall be cancelled with effect from the date of the order.

Example 1: let say, A ltd. And B ltd. Merges together to form MNO Ltd. The date of the order of the NCLT is 1^st Dec, 2017. However the merger has been ordered to be effected from 1^st Oct, 2017.

Any supplies between A ltd. And B Ltd. Between the period from 1^st Oct, 2017 to 30th Nov., 2017 will be taxable in the hands of the respective companies.

Simply putting the two companies till the date of order, even though the merger was to take effect at an earlier date. It would be as if the merger has not taken place till the date of the order. Registration of A Ltd. And b Ltd. shall be cancelled with effect from 1^st Dec, 2017(and not from 1^st Oct, 2017).

From 1^st Dec, 2017 and onwards the two companies will be considered as a single company.

Section 88: Liability in case of company in Liquidation

(1) When any company is being wound up whether under the order of the court or tribunal or otherwise, every person appointed as receiver of any assets of the company (hereafter in this section 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 the 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) Where the PRIVATE COMPANY is being 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 or after its liquidation, cannot be recovered, then every person who was the director of such company at any time during the period for which the tax was due shall, jointly and severally, be liable for the payment of such tax, interest or penalty unless he proves to the satisfaction of the commissioner that such non-recovery cannot be attributed to any gross neglect, misfeasance or breach of any duty on his part in relation to the affairs of the company.

Section 89: Liability of Director of Private Company

(1) Notwithstanding anything contained in the Companies Act 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 the 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 attribute to any gross neglect, misfeasance or breach of any 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 of both for any period during which such company was a private company cannot be recovered before such conversion, then, nothing contained in the 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 to 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.

Example 1: say, ABC Pvt. Ltd. Incorporated on 1^st Jan, 2015 and converted into a public company on 7^th Aug, 2017 then, the tax, interest or penalty in respect of any supply of goods or services or both for any period during 1^st Jan, 2015 to 6^th Aug, 2017 any person who was the director before such conversion, nothing contained in sub section (1) shall apply to any person who was a director of such ABC Pvt. Ltd. Co.  in relation to any tax, interest or penalty in respect of such supply of goods or services or both of such private company.

Section 90: Liability of Partners of firm to pay Tax

Notwithstanding anything contained to the contrary and any other law for the 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 firms shall, jointly and severally, be liable for such payment

Provided that where any partner retire 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 upto 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.

Example 1: A firm having partners with the name of Mr.A, Mr. B & Mr. C where partner Mr. A, being a retired partner of such firm, then Mr. A or such firm shall intimate of such retirement to the commissioner within one month from date of retirement otherwise the liability of such Mr. A may continue until the date on which such intimation is received by the commissioner, though the liability of Mr. A will remained to the date of his retirement if he submit his retirement intimation to the commissioner within the prescribed time.

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 guardians, trustee or agent in such like manner and to 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.

Section 92: Liability of court of wards, etc.

Where the Estate or any portion of the Estate of a taxable person owing a business in respect of which any tax, interest or penalty is payable under this act is under the control of the courts 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 or 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.

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 is 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 is 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, interest or penalty 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 Associates of Persons and the property of the Hindu undivided family or Artificial of Person 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 taxable person under this act upto the time of the partition, whether such tax, interest or penalty has been determined before 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 tax, interest or penalty due from the firm under this act upto 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 a 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 id terminated, the ward or the beneficiary shall be, liable to pay tax, interest or penalty due from the taxable person upto the time of 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.

Section 94: Liability in certain cases

(1) Where a taxable person is a firm or an association of person of Hindu Undivided family and such firm , association or family has discontinued business –

  (a) The tax, interest or penalty payable under this act by such firm, association or family upto the date of such discontinuance may be determined as if no such discontinuance has taken place; and

  (b) Every person who, at the time of such discontinuance, was a partner of such firm, or a member of such association or family, shall notwithstanding such discontinuance, jointly and severally, be liable to tax and interest determined and penalty imposed and payable by such firm, association or family, whether such tax and interest has been determined or penalty imposed prior to or after such discontinuance and subject as aforesaid, the provision of this act shall, so far as may be, apply as if every such person or Partner or member were himself a taxable person.

(2) Where a change has occurred in the constitution of a firm or an association of person, the partners of the firms or members of association, as it existed before and as it exists after the reconstitution shall, without prejudice to the provisions of sec. 90, jointly and severally, be liable to pay tax, interest or penalty due from such firm or an association for any period before its reconstitution.

(3) The provision of sub section (1) shall, so far as may be, apply where a taxable person, being a firm or AOP is dissolved or where the taxable person, being a HUF, has effected partition with respect to the business carried on by it and accordingly references in that sub section to discontinuance shall be construed as reference to dissolution or to partition.

I hope that my member will correct me if there is any err. For further any query, you can reach me at poojagodrya@gmail.com