Liability to Pay in Certain Cases: CA Final Indirect Tax Laws (GST)

What this chapter covers

Liability to Pay in Certain Cases: topics in the order to study them

1. 1Liability on Transfer of Business (Section 85)Start with the core rule. It teaches joint and several liability and the idea of dues up to the date of transfer, which you will reuse in the later topics. Note the extent: on a partial transfer the transferee is liable only for the part transferred, and the transferor remains liable for the rest.
2. 2Liability in Amalgamation or Merger (Section 87) and Company in Liquidation (Section 88)It builds on transfer of business. Section 87 applies 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. If the companies 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 covers any company being wound up, not only a private company: 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 that is payable or likely to become payable by the company. The liquidator must set aside that amount out of the company's assets before parting with the assets. If the liquidator fails to do so and parts with the assets, the liquidator becomes personally liable. That personal liability arises only on this failure, and you should check its exact extent in the bare Act. The separate liability of directors applies only to a private company in liquidation and sits in Section 89. Keep the two sections apart.
3. 3Liability of Agents, Principals and Representatives (Sections 86, 91 and 92)Once you know successor liability, learn liability based on representation, where one person answers for supplies or dues of another. Section 86 covers agent and principal. Section 91 covers guardians, trustees or agents of minors and incapacitated persons. Section 92 covers the Court of Wards, the Administrator General, the Official Trustee and similar persons. Check the exact wording of each in the Act.
4. 4Liability of Directors, Partners and Other Persons (Sections 89 and 90)These rules are personal liability of people behind an entity. Section 89 makes directors of a private company liable only when the company is in liquidation and tax cannot be recovered from it. The defence is proving that non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty, and it belongs only to that situation. Section 90 makes partners of a firm jointly and severally liable, and a retiring partner's liability for dues up to the date of retirement needs separate attention. Learn each rule on its own conditions.
5. 5Liability in Other Special Cases (Sections 93 and 94)Finish with the residual cases. Section 93 covers special provisions such as the death of a person liable to pay and a discontinued business. On death, if the business is continued, the person continuing it 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, and do not stretch it to cover other sections.

How to prepare Liability to Pay in Certain Cases

1. Read each rule once from the bare Act and note four things: trigger event, person liable, extent of liability, and any defence or condition.
2. Make a one-page chart with those four columns for every topic in the study order. Keep it on your phone for quick revision.
3. For each rule, ask what changes if only part of the business is transferred, or if dues were determined after the event. These are the usual twists.
4. Link each rule to registration, demand and recovery provisions so you can answer mixed scenarios.
5. Solve case scenarios in provision-facts-conclusion form: state the rule, apply the facts, then name who pays and how much.
6. Practise MCQs without negative marking worries, but justify each option in a line. This exposes half-learned conditions.
7. Revise the chart three times: after first reading, one week later, and on the last day.

Common mistakes in Liability to Pay in Certain Cases

• Making only the transferee liable on a transfer of business.

  Fix: Write that both transferor and transferee are jointly and severally liable for dues up to the transfer date.

• Ignoring the limit when only part of a business is transferred.

  Fix: Check whether the transfer is whole or partial. Limit the transferee's liability to the transferred part, and state that the transferor remains liable for the rest.

• Treating post-transfer or post-event tax as part of the old liability.

  Fix: Mark the event date on a timeline. Dues up to it follow the rule. Later supplies are the new person's own liability.

• Stating directors' liability as automatic or general.

  Fix: Say directors of a private company may be liable only when it is in liquidation and tax cannot be recovered, unless they prove that non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty.

• Mixing up amalgamation and liquidation rules.

  Fix: Use Section 87 for amalgamation or merger. Use Section 88 for any company being wound up, with the 30-day notice by the liquidator, the Commissioner's notification of the amount within 3 months of receiving that notice, and the liquidator's personal liability only if the amount is not set aside before assets are parted with. Use Section 89 for directors of a private company in liquidation.

• Confusing representative liability with successor liability.

  Fix: Ask whether the person is stepping into the business (successor) or acting for another (agent, representative). Choose the rule on that basis.

• Writing a conclusion without applying the facts.

  Fix: Use provision-facts-conclusion form. Name the parties and amounts in the case before concluding.

Last-day revision: Liability to Pay in Certain Cases

• ✓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.

Liability to Pay in Certain Cases practice questions

• Kavya Textiles HUF, a registered taxable person, has a tax demand of ₹4,50,000 for the period up to 31 March. On 1 April the HUF property wa…
• A Hindu Undivided Family, Mehta HUF, registered under GST, partitioned its business property among its members Hari, Isha and Jay on 15 Dece…
• Sharma & Verma Traders, a partnership firm with partners Sharma, Verma and Gupta, was dissolved on 31 March. GST, interest and penalty of Rs…
• Ramesh Iyer, a sole proprietor registered under GST, died on 10 August leaving tax of Rs 4,00,000 unpaid for earlier periods. His son Karthi…
• Sunrise Traders, a partnership firm, was dissolved on 31 March. Partners Anil, Bhavna and Chetan were partners at dissolution. In July, tax …
• Ramesh Iyer, a sole proprietor registered under GST, died on 10 July. Before his death, a demand of tax and interest had been determined but…
• Sharma & Verma Traders, a partnership firm, was dissolved on 31 March. Partners were Mr. Sharma, Mr. Verma and Mr. Gupta. On 15 July, after …
• Mr. Anil Deshmukh, a trustee carrying on a business under a trust for beneficiary Master Rohan, was registered under GST and owed ₹1,50,000 …

Liability to Pay in Certain Cases in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

• CMA FinalCompromises, Arrangements and Amalgamations
• CS ExecutiveCompromise, Arrangement and Amalgamations - Concepts
• ACCA Applied SkillsRevenue
• CA IntermediateAS 14 Accounting for Amalgamations