CA Final · Indirect Tax Laws

Liability to Pay in Certain Cases: formula sheet

Full chapter guide

Key formulas

Core rule: Liability = tax + interest + penalty due from transferor up to the time of transfer; Applies to transfer in whole or in part, by sale, gift, lease, leave and licence, hire or any other manner.
Nature of liability: Taxable person (transferor) and transferee are jointly and severally liable; The department may recover the full amount from either person. Contribution between them is a private matter.
Part transfer: Where transfer is in part, the transferee's liability relates to the part of the business transferred; The transferor remains liable. Do not load the transferee with dues of the portion that stays with the transferor.
Cut-off: Dues relating to periods up to the time of transfer, whether determined before or after the transfer; Only dues for the post-transfer period are the transferee's own tax liability.
Trigger: Taxable person liable to pay tax, interest or penalty under the CGST Act transfers business in whole or part; Dues relating to periods up to the transfer are covered even if an order determines them after the transfer.
Section 87: merger with retrospective effect: Supplies between merging companies (from the appointed date to the date of the order) → included in each company's aggregate turnover → tax payable by each; Applies where the order takes effect from a date earlier than the order date and two or more of the merging companies have supplies to or from each other. It applies even if the merger is by court, Tribunal or otherwise.
Section 88: intimation by liquidator: Liquidator's appointment date + 30 days = last date to intimate the Commissioner; Count from the date he becomes appointed. Intimation goes to the Commissioner.
Section 88: Commissioner's notice: Date of receipt of intimation + 3 months = last date for the Commissioner to notify the amount; The three months run from receipt of the intimation, not from the date of appointment. The amount is what the Commissioner thinks sufficient for tax, interest and penalty, whether now payable or likely to become payable.
Section 88: liquidator's duty and exposure: Set aside the notified amount before distributing assets; if assets are parted with without doing so, the liquidator can be held personally liable; State this in plain words. Do not invent limits or sub-section numbers.
Agent and principal: liability: Agent supplies or receives taxable goods on behalf of principal ⇒ agent and principal are jointly and severally liable for the tax payable on those goods; Tax on those goods can be recovered in full from either. This is the rule in Section 86.
Meaning of jointly and severally: Joint liability + several liability = department may recover the whole from any one or from all; Do not write that liability is shared equally or that the principal must be pursued first.
Guardian, trustee or agent managing an incapacitated person's business: Tax, interest or penalty is levied on and recoverable from the guardian, trustee or agent in like manner and to the same extent as from the person represented; Applies to a minor or other incapacitated person whose business is managed by a guardian, trustee or agent (Section 91).
Court of Wards and court-appointed managers: Court of Wards, Administrator-General, Official Trustee, receiver or manager appointed by a court managing the property or business of a taxable person ⇒ tax, interest or penalty levied on and recoverable from it in like manner and to the same extent as from that person; The recovery extends to tax, interest and penalty (Section 92). The business remains the taxable person's.
Director liability (Section 89): Dues of private company unrecoverable ⇒ every person who was a director during the period of the dues is jointly and severally liable; Defence: the director proves non-recovery is not due to gross neglect, misfeasance or breach of duty. Applies to private companies only.
Conversion to public company: Private company converted into public company, and dues for the private-company period not recovered before conversion ⇒ Section 89(1) does not apply to a person who was a director of the private company in relation to those dues; Under this provision, Section 89(1) does not apply to such a director unless it is proved that the non-recovery is attributable to his gross neglect, misfeasance or breach of duty.
Partner liability (Section 90): Firm liable ⇒ firm and every partner jointly and severally liable, notwithstanding any contract to the contrary; A partnership deed clause shifting GST liability between partners does not bind the department.
Retiring partner: notice within one month: Notice to Commissioner within 1 month of retirement ⇒ liability limited to the firm's dues up to date of retirement; The dues may be determined later. They still count if they relate to the period up to retirement.
Retiring partner: late or no notice: Notice not given within 1 month ⇒ liability for the firm's dues continues up to the date notice is received by the Commissioner; The notice must be in writing. Either the partner or the firm may give it. The date of receipt governs, not the date of giving.
Legal representative of deceased (Section 93): Business continued after death ⇒ the person continuing it pays the tax due from the deceased. Business discontinued ⇒ legal representative pays the tax due from the deceased out of the estate only; The dues are those payable by the deceased, whether determined before or after death. In the discontinued case liability is limited to the extent the estate can meet the charge.
Court of Wards and similar bodies (Section 91): Estate or business under Court of Wards, Administrator-General, Official Trustee, or Court-appointed receiver or manager ⇒ tax levied on and recovered from that body in the same manner as from the owner; Guardians, trustees and agents of minors or incapacitated persons are dealt with in a similar way in Section 92.
Death, business continued (Section 93(1)(a)): Legal representative or other person continuing the business = liable for the tax, interest and penalty due from the deceased; Section 93(1)(a) makes the continuing person liable for the dues of the deceased.
Death, business discontinued: Liability of legal representative = lower of (dues) and (value of estate available to meet the charge); Discontinuance may happen before or after death. Dues determined after death are also covered.
HUF or AOP partition or disruption (Section 93): Each member or partner immediately before partition = jointly and severally liable for dues up to the date of partition or disruption; The department may recover the whole from any one member. Dues determined after the partition are covered.
Court of Wards and court-appointed managers (Section 92): Court of Wards, Administrator-General, Official Trustee, receiver or manager = liable in the same manner and extent as the taxable person; Applies where the estate or business is under their management. This is Section 92, not Section 93. Section 91 deals with guardians, trustees and agents of incapacitated persons.
First charge on property (Section 82): Tax, interest and penalty payable to Government = first charge on the property of the person liable; Section 82 is expressly subject to the Insolvency and Bankruptcy Code, 2016. It overrides other laws that say otherwise.

Quick revision

Look first for the trigger event, then the person made liable, then the extent, then any defence.
On transfer of business, transferor and transferee are jointly and severally liable for dues up to the date of transfer.
Dues may be determined before or after the transfer. The liability still follows the transferred business.
For a partial transfer, the transferee is liable only for the part transferred, and the transferor remains liable for the rest.
Tax on supplies after the transfer is the transferee's own liability, and the transferee must comply with registration rules.
Section 87 (amalgamation or merger): where companies are amalgamated or merged by an order of a court or Tribunal (or otherwise) that takes effect from a date earlier than the date of the order, and they supplied or received goods or services to or from each other between that effective date and the date of the order, those transactions are included in the turnover of supply or receipt of the respective companies, and the companies are liable to pay tax accordingly. Their registrations are cancelled with effect from the date of the order.
Section 88 (company in liquidation, any company being wound up): the liquidator gives notice of appointment to the Commissioner within 30 days of appointment. After inquiry, the Commissioner notifies the liquidator, within 3 months of receiving that notice, the amount needed to provide for tax, interest or penalty payable or likely to become payable. The liquidator must set aside that amount out of the company's assets before parting with them. If the liquidator fails to do so and parts with the assets, the liquidator is personally liable. Check the extent in the bare Act.
Section 89: directors are liable only where a private company is in liquidation and tax cannot be recovered from it. This is not a general director liability, and it is separate from the liquidator's duty under Section 88.
The directors' defence rests on proving that non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty.
Section 86: principal and agent are jointly and severally liable for tax on goods supplied or received by the agent on the principal's behalf. Read the facts to see who made the supply.
Section 90: partners of a firm are liable jointly and severally for the firm's dues. Check the position of a retiring partner, whose liability for dues up to the date of retirement continues.
Section 93 (death and discontinuance): if a person liable to pay tax, interest or penalty dies, the dues of the deceased are recoverable whether the amount was determined before death and left unpaid or is determined after death. If the business is continued by the legal representative or another person, that person is liable. If the business is discontinued, the legal representative is liable only out of the deceased's estate, to the extent the estate can meet the dues. Dues for the period before a business is discontinued remain payable.
Section 94 deals with liability in other cases. Learn the situations it lists from the bare Act.
Always state the conclusion in plain words: who pays, how much, and until when.

Common mistakes

Saying the transferor is released once he transfers the business. Fix: Remember the words 'jointly and severally'. The transferor remains liable along with the transferee.
Making the transferee liable for all the transferor's dues in a part transfer. Fix: Tie the transferee's liability to the extent relating to the part of the business transferred, as the section provides, and say the transferor stays liable.
Quoting Section 86 for amalgamation. Fix: Memorise the sequence: 85 transfer of business, 86 agents and principals, 87 amalgamation or merger, 88 liquidation, 89 directors of private company.
Treating supplies between merging companies as ignorable because they merged. Fix: Under Section 87 the supplies between the companies in the retrospective gap remain supplies. They are included in each company's aggregate turnover and taxed.
Writing that the department must first recover from the principal and only then from the agent. Fix: Remember jointly and severally: the whole amount can be recovered from either one or from both, with no order imposed.
Saying liability is split in proportion to each party's share of profit or commission. Fix: State that the department can claim the full tax from any one. Any apportionment is between the parties under their contract.
Applying Section 89 to directors of a public company. Fix: Check the company type first. Section 89 covers private companies only.
Holding every director liable with no defence. Fix: Always add that the director escapes if he proves the non-recovery is not due to gross neglect, misfeasance or breach of duty.
Saying the legal representative is always liable for the full dues after death. Fix: Ask whether the business was continued. If discontinued, liability is only out of the estate to the extent it can meet the dues.
Limiting a HUF member's liability to his own share. Fix: The liability is joint and several. The department can recover all dues from any one member. Shares matter only between the members themselves.

Exam tips

Draw a quick date line in case questions to separate pre-transfer and post-transfer dues.
Always write 'jointly and severally' in the conclusion. Examiners look for this phrase.
In part-transfer cases, show which dues you include and which you exclude, with a one-line reason.
List all modes of transfer when a question uses lease, licence or gift, so you do not miss that the section applies.
For MCQs, test each option against two points: does the transferor stay liable, and does the transferee's liability relate to the business transferred.
Write the section number in the first line: Section 87 for merger, Section 88 for liquidation. Examiners often reward correct numbering.
In case scenarios, underline the dates. Two dates in a merger question (appointed date and order date) signal Section 87. Two dates in a liquidation question signal the 30-day and three-month clocks.
Answer in provision-facts-conclusion form. State the rule, apply it to the dates and amounts, and give a clear conclusion.