CHAPTER XX

LIABILITY TO PAY IN CERTAIN CASES

20.1 This chapter focuses on the provisions for the liability to

pay tax in certain cases, as mandated under the CGST Act.

Liability to pay in certain cases:

20.2 Chapter XVI of the CGST Act contains specific provisions
regarding the liability to pay tax in certain cases. In terms of Section
20(1) (xvii) of the Integrated Goods and Services Tax Act, 2017, the
provisions relating to the liability to pay in certain cases under the
CGST Act shall mutatis mutandis (i.e. with the respective differences
being considered), apply, so far as may be, in relation to the integrated
tax as they apply in relation to central tax as if they are enacted under
the Integrated Goods and Services Tax Act, 2017.

20.3 The provisions of Chapter XVI of the CGST Act are

explained below:

1. Liability in case of transfer of business - Section 85 of the CGST

Act provides for circumstances where any taxable person, liable
to pay tax under the said Act, has transferred his business (in
whole or in part) and the tax, interest or penalty due by him
under the Act has not been paid. The liability of such taxable
person may either concern tax, interest or penalty that has been
determined prior to the transfer and remains unpaid or such
amount that has been determined after the transfer of business.
Further, the transfer of business may take place by sale, gift,
lease, leave and license, hire or ‘in any other manner
whatsoever’.
Section 85(1) provides that in the above circumstances,
both the taxable person and the person to whom the business is
transferred shall be jointly and severally liable to pay such tax,
interest and penalty, either wholly or to the extent of such
transfer of business.
Section 85(2) provides for the tax liability in relation to
supplies subsequent to the transfer. It states that where such
transferee of a business carries on such business, 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. This
liability will be imposed regardless of whether the transferee
carries on such business in his own name or in some other
name. If the transferee is a registered person under the CGST
Act, he shall apply within the prescribed time for amendment of
his certificate of registration. In terms of Rule 19 of the Central
 Goods and Services Tax Rules, 2017, this time period is fifteen
(15) days.

2. Liability of agent and principal - Section 86 of the Act provides

that where an agent supplies or receives any taxable goods on
behalf of his principal, both the agent and principal shall jointly
and severally be liable to pay the tax that is payable on such
goods under the CGST Act.

3. Liability in the case of amalgamation or merger of companies -

Section 87 provides for the tax liability in circumstances where
the amalgamation or merger of two or more companies take
place in pursuance of a court or tribunal order or otherwise.
Specifically, it provides for the tax liability for supply of goods or
services between any two or more of such companies between
the date of the order and the date from which the order is to
take effect (if the latter date is earlier to the date of the order).
Under Section 87(1) such supplies are made during the said
time period, the transactions shall be included in the turnover
of the supply or receipt of the respective companies and the
companies shall be liable to pay tax accordingly.
Section 87(2) clarifies that notwithstanding anything
contained in the order, the said two or more companies shall be
treated as distinct companies for the period up to the date of the
order. The registration certificates of the said companies shall
only be cancelled with effect from the date of the said order. It is
pertinent to note that as per Explanation (ii) at the end of
Chapter XVI of the CGST Act, a ‘court’ means the District Court,
High Court or Supreme Court.

4. Liability in case of company in liquidation - The provision relates

to liability to pay tax, interest and liability under the CGST Act
in cases of winding up of a company under the orders of a court
or tribunal or otherwise.
As per Section 88(1), every person appointed as receiver
of any assets of a company in such winding up proceedings
(referred to as the ‘liquidator’) shall give intimation of his
appointment to Commissioner of Central Tax within thirty (30)
days after the appointment of the liquidator.
Under Section 88(2), the Commissioner shall make an
inquiry and call for such information as he may deem fit, for
determining the amount which in the opinion of the
Commissioner would be sufficient to provide for any tax,
interest or penalty which is payable or is likely thereafter o
become payable by the company. The Commissioner shall notify
this amount to the appointed liquidator within three (3) months
from the date on which he receives intimation of the
appointment of the liquidator.
5. Liability of directors of private company -

a) Liability of directors in case tax, interest or penalty due

from private company in relation to taxable supply of goods,
services or both - Section 89(1) provides for liability to pay
any tax, interest or penalty due from a private company
(in respect of any supply of goods or services or both for
any period) which cannot be recovered. In such cases, the
provision mandates that every person who was a director
of the private company during the relevant period shall be
jointly and severally liable for the payment of such tax,
interest or penalty. However, any director shall not be so
liable if 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.
Section 89(1) of the CGST Act shall apply notwithstanding
anything contained in the Companies Act, 2013.

b) Liability of directors in case of a private company wound

up - Similarly, Section 88(3) provides for the liability to
pay any tax, interest or penalty determined under the
CGST Act (payable by a private company that is wound
up) in cases when such tax, interest or penalty cannot be
recovered. Such tax, interest or penalty may be payable
for any period, whether before, or in the course of, or after
the liquidation of such company. The provision mandates
that if such tax, interest or penalty cannot be recovered,
then every person who was a director of such company at
any time during the period for which the tax was due
shall be jointly and severally liable for the payment of
such tax, interest or penalty. However, any such director
would only be liable in the aforesaid manner unless he
proves to the satisfaction of the Commissioner of Central
Tax that such 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.

c) Liability in case private company is converted into a

public company: Section 89(2) provides for liability to pay
of any tax, interest or penalty (in respect of any supply of
goods or services or both) due from a private company
that is converted into a public company for any period
during which such company was a private company. It
states that where such tax, interest or penalty cannot be
recovered before such conversion, then, nothing
contained in Section 89(1) of the CGST Act shall apply to
any person who was a director of such private company in
relation to such tax, interest or penalty. In other words,
 the director(s) of the private company shall not be jointly
or severally liable for the payment of such tax, interest or
penalty. This provision shall not apply to any personal
penalty imposed on such director.

6. Liability of Partners of Firm to Pay Tax - It is pertinent to note

that as per Explanation (i) at the end of Chapter XVI of the
CGST Act, a Limited Liability Partnership (LLP) formed and
registered under the provisions of the Limited Liability
Partnership Act, 2008 shall also be considered a firm for the
purpose of Chapter XVI.
Section 90 provides that where any firm (i.e. a
partnership firm) is liable to pay any tax, interest or penalty
under the CGST Act, the firm and each of the partners of the
firm shall be jointly and severally liable for such payment. This
provision is applicable notwithstanding any contract to the
contrary and any other law for the time being in force.

The Provisos to Section 90 provide for liability of a retiring

partner as well as firm in circumstances of retirement of a
partner. The first Proviso to Section 90 stipulates that where
any partner retires from the firm, such partner or the firm shall
intimate the date of retirement of the said partner to the
Commissioner, by a notice in that behalf in writing. Such
partner shall be liable to pay tax, interest or penalty due up to
the date of his retirement whether determined or not, on the
date of his retirement. The second Proviso further states that if
no intimation of retirement is given to the Commissioner within
one (1) 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.

7. Liability of Guardians, Trustees, Etc. -

Section 91 provides for the liability to pay tax, interest or
penalty in cases where a business in respect of which any tax,
interest or penalty payable under the CGST Act is carried on by
the following persons:
- A guardian;
- A trustee; or
- An agent of a minor or other incapacitated person on behalf of
and for the benefit of such minor or other incapacitated person.
The provision stipulates that, in such circumstances, 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 the CGST Act or the
rules made thereunder shall apply accordingly.
8. Liability of Court of Wards, etc. -
Section 92 provides for circumstances where any tax,
interest or penalty is payable by a taxable person owning a
business under the CGST Act and the estate (or any portion of
the estate) of such taxable person is under the control of:
o The Court of Wards;
o The Administrator General;
o The Official Trustee; or
o 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 provision stipulates that in the above circumstances,
such 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 the CGST Act or the rules
made thereunder shall apply accordingly.

9. Special Provisions regarding liability to pay tax, interest or penalty

in certain cases - Section 93 provides for the liability to pay tax,
interest or penalty in four specific circumstances, enumerated
below:

a) Liability in case of death of taxable person - Section

93(1) envisages two circumstances in case a person liable
to pay such tax, interest or penalty under the CGST Act
dies:
o The business carried on by such person is continued after
his death by his legal representative or any other person:
In such cases, Section 93(1)(a) states that such legal
representative or other person, shall be liable to pay tax,
interest or penalty due from the such person;
o The business carried on by such person is discontinued,
whether before or after his death: In such cases, Section
93(1)(b) states that 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.
Section 93(1) is applicable to any outstanding liability of
tax, interest or penalty regardless of whether it has been
determined before his death but remains unpaid or is
determined after his death. However, Section 93(1) is not
applicable to the extent that the Insolvency and
Bankruptcy Code, 2016 provides otherwise.

b) Liability in case of partition of property belonging to

Hindu Undivided Family (HUF) or association of persons -
 Section 93(2) provides for circumstances where the
taxable person liable to pay tax, interest or penalty under
the CGST Act is an HUF or an association of persons and
the property belonging to such HUF/association of
persons is partitioned amongst the various members or
groups of members. The provision mandates that in such
circumstances, each member or group of members shall
be jointly and severally liable to pay tax, interest or
penalty due from the taxable person under the CGST Act
up to the time of the partition.
Section 93(2) is applicable to any outstanding liability of
tax, interest or penalty regardless of whether it has been
determined before partition but remains unpaid or is
determined after partition. However, Section 93(2) is not
applicable to the extent that the Insolvency and
Bankruptcy Code, 2016 provides otherwise.

c) Liability in case of dissolution of firm: Section 93(3)

provides for circumstances where the taxable person
liable to pay tax, interest or penalty under the CGST Act
is a firm (namely a partnership firm) and the firm is
dissolved. The provision mandates that in such
circumstances, every person who was a partner shall be
jointly and severally liable to pay tax, interest or penalty
due from the firm under the CGST Act up to the time of
dissolution of the firm.
Section 93(3) is applicable to any outstanding liability of
tax, interest or penalty regardless of whether it has been
determined before dissolution but remains unpaid or is
determined after dissolution. However, Section 93(3) is
not applicable to the extent that the Insolvency and
Bankruptcy Code, 2016 provides otherwise.

d) Liability in case of termination of guardianship or trust:

Section 93(4) provides for circumstances where the
taxable person liable to pay tax, interest or penalty is
either:
o The guardian of a ward on whose behalf the business is
carried on by the guardian; or
o A trustee who carries on the business under a trust for a
beneficiary.
The provision stipulates that in the aforementioned
circumstances, 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 up to the
time of the termination of the guardianship or trust.
Section 93(4) is applicable to any outstanding liability of
tax, interest or penalty regardless of whether it has been
determined before the termination of guardianship/trust
 but remains unpaid or is determined after the termination
of guardianship/trust. However, Section 93(4) is not
applicable to the extent that the Insolvency and
Bankruptcy Code, 2016 provides otherwise.

10. Liability in other cases – Section 94 provides for

circumstances where the taxable person is a firm/association of
persons/Hindu Undivided Family (HUF) and such taxable
person has discontinued business, or where a change of
constitution has taken place in respect of any firm/association
of persons, or where a firm or association of persons is dissolved
or where partition has been effected by an HUF in respect of its
business.

a) Discontinuation of business: Section 94(1)(a) provides

that the tax, interest or penalty payable under this Act by
such firm/association/HUF up to the date of such
discontinuance may be determined as if no such
discontinuance had taken place.
Section 94(1)(b) states that every person who, at the time
of such discontinuance, was a partner of such firm or a
member of such association/HUF shall, notwithstanding
such discontinuance, be jointly and severally liable for the
payment of tax, interest and penalty payable by the
firm/association/HUF. Section 94(1)(b) is applicable to
any outstanding liability of tax, interest or penalty
regardless of whether it has been determined prior to or
after such discontinuance. It further stipulates that,
subject as aforesaid, the provisions of the CGST Act shall
so far as may be, apply as if every such person or partner
or member were himself a taxable person.
b) Change in the Constitution of Firm/Association of
Persons: Section 93(2) provides that in such
circumstances, the partners of the firm or members of
association, as it existed before and as it exists after the
reconstitution, shall, without prejudice to the provisions
of section 90 of the CGST (i.e. the aforementioned
provision regarding liability of partners of firm to pay tax),
be jointly and severally liable to pay tax, interest or
penalty due from such firm or association for any period
before its reconstitution.
c) Dissolution of Firm/Association of persons or Partition of
business carried on by HUF: Section 94(3) provides that
Section 93(1) shall, so far as may be, apply in such
circumstance and accordingly references in that sub-
 section to discontinuance shall be construed as reference
to dissolution or to partition. In other words:
o The tax, interest or penalty payable under this Act by
such firm/association/HUF up to the date of such
dissolution/partition (as the case may be) may be
determined as if no such dissolution or partition had
taken place;
o Every person who, at the time of such
dissolution/partition, was a partner of such firm or a
member of such association/HUF shall, notwithstanding
such dissolution or partition, be jointly and severally
liable for the payment of tax, interest and penalty payable
by the firm/association/HUF;
o The aforementioned provision is applicable to any
outstanding liability of tax, interest or penalty regardless
of whether it has been determined prior to or after such
dissolution or partition; and
Subject as aforesaid, the provisions of the CGST Act shall
so far as may be, apply as if every such person or partner
or member were himself a taxable person.

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