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

Vikas Enterprises, a partnership firm with partners Hari and Indu, was reconstituted on 1 April when Jaya was admitted as a new partner. A demand of ₹2,50,000 relates to a period before 1 April. Which statement is correct under the CGST Act, 2017?

Partners before and after the reconstitution, including Hari, Indu and Jaya, are jointly and severally liable for the ₹2,50,000 relating to the period before reconstitution. The law covers both the old and new constitution of the firm.

  1. AOnly Hari and Indu are liable, as Jaya was not a partner in that period
  2. BOnly the partners at the time of the demand, i.e. Hari, Indu and Jaya, are liable, and each only severally
  3. CThe firm alone is liable and no partner can be proceeded against
  4. DPartners as they existed before and after the reconstitution are jointly and severally liable for the dues of the earlier periodCorrect

Explanation

Section 94(2) provides that on a change in the constitution of a firm, the partners as they existed before and as they exist after reconstitution are jointly and severally liable for the dues for any period before reconstitution. So Jaya is also covered along with Hari and Indu. Option A ignores 'as it exists after'.

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