This comprehensive article delves into the intricate nuances of tax liability under the Goods and Services Tax (GST) law in India, examining specific scenarios and their implications for both businesses and individuals. By analyzing the legal provisions and addressing ambiguities, the article aims to provide clarity on tax payment responsibilities in various situations.
The Goods and Services Tax (GST) law in India assigns tax liability to different classes of persons, operating under Forward and Reverse Charge Mechanisms. In the past, uncertainties surrounded the responsibility for paying outstanding taxes, leading to varied practices and conflicting interpretations across states. This article seeks to analyze the legal framework and define tax payment responsibilities in a precise manner.
Under the GST Law, two classes of persons bear the responsibility to pay taxes:
- a) Forward Charge Mechanism (FCM): In this scenario, the Supplier of Goods and Services is mandated to pay taxes to the Government.
- b) Reverse Charge Mechanism (RCM): Here, the Recipient of specified goods and services is mandated to pay taxes to the Government.
While it is generally clear who holds the liability to pay GST, previous indirect tax laws lacked clarity in specific situations, resulting in confusion. To address this, the GST law now covers certain situations and clearly defines who should be liable for tax payments.
Specific Liability and Implications:
1. Liability in Case of Transfer of Business [Section 85]:
a. When a taxpayer transfers their business, tax liability up to the transfer date becomes joint and several for both the transferor and transferee. The extent of liability corresponds to the whole amount or the value of the transfer.
b. This liability applies if the tax, interest, and penalty were determined before or after the business transfer.
c. The transferee must either obtain a new registration or amend the existing one to include the acquired business and pay taxes on subsequent supplies.
d. The provision is applicable only when an entire business or part of it is transferred, not when only assets are transferred.
2. Liability in Case of Principal-Agent Relations [Section 86]:
a. The principal-agent relationship is governed by The Indian Contract Act, of 1872. The principal is usually liable, but the agent can be responsible if they exceed their contractual boundaries.
b. When an agent supplies or receives goods on behalf of the principal, both parties become jointly and severally liable for paying tax on those goods.
c. This section does not apply to liabilities arising from the supply of services by the agent on behalf of the principal.
3. Liability in case of Retrospective Order for Amalgamation or Merger of Companies [Section 87]:
a. When an amalgamation or merger is approved with retrospective effect, supplies made before the court orders are considered the turnover of the affected company.
b. The supplying company is responsible for paying taxes on these supplies.
c. The merging companies are treated as distinct entities until the court order, and their registration certificates are canceled accordingly.
4. Liability in the Case of Liquidating Companies [Section 88]:
a. When a company is wound up or goes into liquidation under the Insolvency and Bankruptcy Code, of 2016, a liquidator is appointed for asset distribution.
b. The liquidator must inform the commissioner of their appointment within 30 days.
c. The commissioner assesses the amount sufficient to cover any tax, interest, or penalty payable by the company, and the directors become jointly and severally liable for any unpaid GST if there are insufficient funds.
5. Liabilities of Directors of Private Companies [Section 89]:
a. If a private company fails to pay GST, every director during the non-payment period becomes jointly and severally liable, except when they can prove their non-involvement in the neglect, misfeasance, or breach of duty.
b. After the conversion of a private company into a public company, GST arrears from its private company period cannot be recovered from past directors.
6. Liability in Case of Partners of Firm [Section 90]:
a. In a partnership firm, all partners are jointly and severally liable for GST arrears.
b. A retiring partner must inform the commissioner within one month, and their liability extends until the commissioner receives the intimation.
c. These provisions prevail over any contractual arrangements or other laws.
7. Liability of Guardians, Trustees, etc. [Section 91]:
a. Business operations carried out in the name of minors to evade penal provisions are no longer valid. GST arrears of such businesses are recoverable from the guardian, trustee, or agent.
8. Liability of Courts of Wards, Receiver, Trustee, Manager, Administrator General, etc. [Section 92]:
a. GST arrears from the estate of a taxable person under the control of the Court of Wards, Administrator General, Official Trustee, receiver, or manager are recoverable from these authorities.
9. Liability in case of Death, Partition, or Dissolution [Section 93]:
a. In the event of a person’s death and continuation of their business, the legal representative or the person carrying on the business becomes liable for GST arrears.
b. During the partition of a HUF or AOP, each member receiving a share of the property is severally and jointly liable for GST arrears.
c. In the case of a firm’s dissolution, every partner is jointly and severally liable for GST arrears, regardless of receiving assets from the firm.
10. Liability in Residual Cases [Section 94]:
a. If a firm, HUF, or AOP discontinues its operations, partners or members are liable for outstanding GST arrears.
b. A change in the constitution of a firm or AOP makes the partners and members before and after reconstitution jointly and severally liable for pre-reconstitution GST arrears.
The introduction of specific provisions under the GST law has significantly reduced ambiguity and conflicting interpretations regarding tax liabilities. With the outlined scenarios and responsibilities, taxpayers are now equipped to meet their GST dues more effectively, preventing any undue burden on individuals and ensuring compliance with the law.