Indirect Tax Laws · Charge of GST

Transfer of Property Void in Certain Cases (Section 81 CGST)

Updated 5 October 2026 · Fact-checked

Section 81 CGST says that if a taxable person, while certain proceedings against them are pending, creates a charge on or transfers property with intent to defraud the revenue, that charge or transfer is void against the tax claim. It is saved only if made for adequate consideration, in good faith and without notice, or with the officer's permission.

Understand Transfer of Property Void in Certain Cases

A person who expects a tax demand may try to move assets out of reach. They sell the factory to a relative, or mortgage land to a friend. The Government then finds nothing to recover from. Section 81 closes this gap.

The section applies only during the pendency of proceedings against a taxable person. These are the assessment, audit-type, inspection or search, and demand proceedings under the CGST Act (for example, scrutiny and best-judgment assessment, search and seizure, and demand under sections 73 and 74). Before any such proceeding starts, section 81 does not apply.

Two acts are covered: creating a charge on the property (mortgage, lien and similar) and parting with the property (sale, gift, transfer). The property is the property belonging to the taxable person.

The key condition is intention to defraud the Government revenue. If the intention is there, the charge or transfer is void as against any claim for tax or other sum payable as a result of those proceedings. Void here is limited. It is void against the Government's claim, so the department can proceed against the property as if the transfer had not happened.

There is a safe harbour. The charge or transfer is not void if it is made for adequate consideration, in good faith, and without notice of the pendency of the proceedings or of the tax or sum payable. The law also saves a transfer made with the previous permission of the proper officer. This protects honest buyers and lenders.

Key rules to remember

Section 81 trigger: Proceedings pending against a taxable person + charge created / property parted with + intention to defraud revenue ⇒ charge or transfer void against the tax claim; All three elements must be present. Intention to defraud is the deciding element.
Scope of voidness: Void only 'as against' tax or other sum payable as a result of those proceedings; The transfer is not wiped out for every purpose. It is ignored for the Government's recovery.
Safe harbour (proviso): Not void if: adequate consideration + good faith + without notice of the proceedings or the tax payable; or with previous permission of the proper officer; The three transferee conditions work together. Failing any one of them removes the protection, unless the officer's previous permission was taken.
Timing rule: Transfer before proceedings begin ⇒ section 81 not attracted; Such a transfer may be examined under other provisions, such as the tax-as-first-charge rule, but not under section 81.

How to solve Transfer of Property Void in Certain Cases questions

Use this order for any case question on section 81. Write the answer in provision, facts, conclusion form.

1Identify the taxable person and check whether any proceeding (assessment, inspection or search, demand) was pending on the date of the transaction.
2Identify the act: creation of a charge or transfer of property belonging to the taxable person.
3Check the intention. Look for facts showing an attempt to defeat recovery: sale to relatives, price far below market, quick sale after notice, sale of the main asset.
4If proceedings were pending and intent to defraud is shown, state the general rule: the charge or transfer is void against the tax claim.
5Test the proviso: was the consideration adequate, was the transferee in good faith, and did the transferee lack notice of the proceedings or tax payable? Check also if the proper officer gave prior permission.
6Conclude clearly: void against the Government's claim, or valid because the proviso applies. Mention that the department can recover the dues from the property.

Quickest way: Four-question check for section 81

When to use it: Use it for short case-scenario MCQs and for the first lines of a written answer.

Were proceedings pending on the transaction date? If no, section 81 is out.
Was it a transfer or charge by the taxable person? If no, section 81 is out.
Was the aim to defraud the revenue? If no, it is not void under this section.
Did the buyer or lender meet all the proviso conditions, or was there officer permission? If yes, valid. If no, void against the tax claim.

Common mistakes in Transfer of Property Void in Certain Cases

Applying section 81 to a transfer made before any proceedings began.
Students focus on the intention to evade and forget the pendency condition.
Fix: Always fix the date of the transfer against the date proceedings started. No pending proceedings means no section 81.
Saying the transfer is void for all purposes.
The word 'void' is read in the ordinary sense.
Fix: Write that it is void only as against the claim for tax or other sum payable as a result of the proceedings.
Treating every transfer during proceedings as void.
Students skip the intention to defraud and the proviso.
Fix: State the intention requirement, then test the proviso before concluding.
Applying the proviso when only one condition is met, for example good faith alone.
Students remember the three conditions but treat them as alternatives.
Fix: Adequate consideration, good faith and no notice must all be met. Say so in the answer.
Forgetting the proper officer's previous permission as a separate protection.
It is a short phrase at the end of the proviso and is easy to miss.
Fix: Add a line: a transfer with the previous permission of the proper officer is not void.
Mixing up section 81 with transfer of business liability or the first charge on property.
All three deal with property and tax dues.
Fix: Section 81 voids a fraudulent transfer during proceedings. The first-charge rule gives the Government priority. Transfer of business covers liability of the successor.

Worked examples

Example 1

A notice under section 74 is issued to Mehta Traders on 5 June for alleged tax evasion. On 20 June, Mr Mehta sells his warehouse, worth ₹80,00,000, to his brother for ₹10,00,000. The brother knows of the notice. The department later confirms a demand. Can the department treat the sale as valid against its claim?

Show the solution

Provision: under section 81, a charge or transfer made during the pendency of proceedings, with intention to defraud the revenue, is void against the tax claim.
Facts: proceedings under section 74 were pending from 5 June. The transfer was made on 20 June, during the pendency. The warehouse belonged to the taxable person.
Intention: the price is ₹10,00,000 against a value of ₹80,00,000, and the buyer is a close relative. This points to an intention to defeat recovery.
Proviso: consideration is not adequate, and the brother had notice of the proceedings. The conditions of adequate consideration, good faith and no notice are not met. No prior permission of the proper officer is mentioned.
Conclusion: the sale is void as against the demand, and the department can proceed against the warehouse to recover the dues.

Answer: The sale is void as against the Government's claim. The department can recover the tax and other sums from the warehouse.

Example 2

Scrutiny and search proceedings are pending against Nova Ltd. During them, Nova Ltd sells a vacant plot to Ms Rao for ₹40,00,000, its fair market value. Ms Rao paid by bank transfer after due inquiry. She had no knowledge of the proceedings or any tax dues. Is the sale void under section 81?

Show the solution

Provision: section 81 voids a transfer during proceedings made with intention to defraud revenue, but the proviso saves a transfer made for adequate consideration, in good faith and without notice.
Facts: proceedings were pending and the plot belonged to Nova Ltd, so the timing condition is met.
Proviso test: price equals fair market value, so consideration is adequate. Ms Rao made inquiry and paid by bank transfer, which shows good faith. She had no notice of the proceedings or tax payable.
All three conditions are satisfied, so the transfer is not void even though proceedings were pending.
Conclusion: the sale stands. The department can still pursue Nova Ltd's other assets for recovery.

Answer: The sale is not void. It falls within the proviso to section 81 because it was for adequate consideration, in good faith and without notice.

Exam tips

In case scenarios, first mark the date proceedings started and the date of transfer. Many questions are decided on this timing.
Write the proviso as three conditions that must all be satisfied, and add the proper officer's previous permission as a separate saving.
Use the words 'void as against the claim for tax or other sum payable' in your conclusion. Do not say the sale is cancelled for all purposes.
Look for fact clues of intent: relatives as buyers, low price, sale of the main asset right after notice. State them in the answer.
In MCQs, check whether the transfer was before proceedings. If so, the answer is that section 81 does not apply.

Practice questions from Charge of GST

Transfer of Property Void in Certain Cases: frequently asked questions

What does section 81 of the CGST Act say in simple words?

If a taxable person transfers property or creates a charge on it while proceedings are pending, intending to defraud the revenue, that transfer or charge is void against the tax claim. The department can then recover its dues from that property.

Is every transfer during GST proceedings void?

No. The transfer must be made with the intention of defrauding the Government revenue. Even then, it is not void if it was made for adequate consideration, in good faith and without notice, or with the proper officer's previous permission.

Does section 81 apply to a transfer made before the notice is issued?

No. The section applies only during the pendency of the specified proceedings. A transfer made before proceedings start is outside section 81, though other recovery provisions may still be relevant.

Against whom is the transfer void under section 81?

It is void as against the claim for tax or any other sum payable by the taxable person as a result of the proceedings. It is not void for every purpose between the buyer and seller.