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CA Final · Indirect Tax Laws · Liability to Pay in Certain Cases

Shree Traders, a partnership firm, was dissolved on 31 March. Partners were Anil, Bhavna and Chetan. In July, an order determined tax of ₹6,00,000 and interest of ₹1,00,000 for the period up to 31 March, all unpaid. Bhavna argues that she is liable only for one-third. What is the correct position under the CGST Act?

Each former partner, including Bhavna, is jointly and severally liable for the entire dues up to the date of dissolution. It makes no difference that the order was passed after dissolution, so a one-third proportionate liability argument is not valid.

  1. ABhavna is liable only for her profit-sharing proportion of the dues
  2. BOnly the partner who managed the GST compliance is liable
  3. CEvery person who was a partner is jointly and severally liable for the dues up to dissolution, even though determined after dissolutionCorrect
  4. DNo one is liable because the amount was determined after the dissolution

Explanation

On dissolution of a firm, every person who was a partner is jointly and severally liable for tax, interest or penalty due up to the time of dissolution, whether determined before or after dissolution. So the department may recover the full ₹7,00,000 from any partner, and Bhavna's one-third argument fails.

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