Transfer of Tax Liability under GST: In the realm of Goods and Services Tax (GST), there are circumstances where recovering tax liabilities from a taxpayer directly may prove to be impossible. To address such situations, Sections 85 to 94 of the CGST Act outline legal provisions governing the transfer of tax liability under such circumstances. These provisions come into play when GST amounts, including tax, interest, and penalties, cannot be collected directly from the taxpayer. In this article, we will delve into these GST provisions for the seamless transfer of tax liability in various scenarios.
Transfer of Tax Liability on Transfer of Business (Section 85)
When a taxable person (the transferor) transfers their business to another (the transferee), both parties become jointly and severally liable to pay the due GST, either wholly or to the extent of the transfer. The transferee assumes this liability from the date of the transfer, regardless of whether the tax, interest, or penalty was determined before or after the transfer. If the transferee operates the business under a new name, they must apply for an amendment to their registration certificate.
Tax Liability of Agent and Principal (Section 86)
In cases where an agent supplies or receives taxable goods on behalf of a principal, both the agent and the principal are jointly and severally liable for paying GST.
Tax Liability on Amalgamation and Merger of Companies (Section 87)
When two or more companies amalgamate or merge, each remains individually responsible for their taxes. If the merger is ordered by a court or tribunal with retrospective effect and the companies have transacted with each other during that period, they are treated as distinct entities under GST until the date of the order. Registrations are cancelled on the order date.
Tax Liability on Company in Liquidation (Section 88)
In the event of a company being wound up and a receiver appointed for its assets, the receiver must inform the Commissioner within 30 days of appointment. The Commissioner, within three months, notifies the amount needed to settle any tax dues. The company must clear the dues within three months of receiving this intimation. If it fails to do so, the directors become jointly and severally liable. Directors not responsible for the non-payment due to no personal negligence are exempt from this liability.
Tax Liability of Private Company Directors (Section 89)
When dues cannot be recovered from a private company, its directors in office during the tax period are liable unless they prove to the Commissioner that their non-recovery isn’t due to gross negligence, misfeasance, or breach of duty. Section 89 doesn’t apply to private-to-public company conversions.
Tax Liability of Partners in a Firm/LLP (Section 90)
In cases where a firm (including LLP) owes GST, both the firm and each partner are jointly and severally liable, overriding limited liability provisions. Partners or retiring partners must inform the Commissioner of retirements within one month; failing to do so keeps them liable.
Tax Liability of Guardians, Trustees, etc. (Section 91)
Tax, interest, or penalty can be levied and recovered from both guardians/trustees/agents and beneficiaries (minors/incapacitated persons).
Liability of Court of Wards, etc. (Section 92)
If a business owes GST, the Court of Wards, Administrator General, Official Trustee, receiver, or manager become liable along with the taxable person.
Liability after the Death of the Taxpayer (Section 93)
Legal heirs/representatives are liable for unpaid GST dues if they continue the business. If the business is discontinued, the legal heir is liable to pay from the deceased’s estate.
Liability of Partnership Firm on Dissolution (Section 94)
Upon dissolution of a partnership firm, each partner is jointly and severally liable for any GST due until the date of dissolution.
Liability of HUF/AOP on Partition (Section 94)
During property division among HUF/AOP members, each member or group becomes jointly and severally liable for all GST dues up to the partition date.
Liability when a Trust is Terminated (Section 94)
If a guardianship or trust overseeing a business for a beneficiary is terminated, the beneficiary becomes liable for all unpaid GST dues.
Liability on Reconstitution of Firm/AOP (Section 94)
Upon reconstitution of a firm/AOP, all partners/members before reconstitution are jointly and severally liable for all dues up to the reconstitution date.
Conclusion
In various circumstances, it may become challenging to collect GST dues directly from a taxpayer. However, the government has enacted provisions under the GST law to determine tax liability in such situations. Understanding these provisions is crucial to accurately determine GST liability and avoid potential tax disputes with the tax authorities.
For clarification on transfer of ITC on death of sole proprietor, please visit-https://cbic-gst.gov.in/pdf/circular-cgst-96.pdf
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