Liability to Pay GST in cases of Death and Dissolution

In our previous article, we have covered the persons liable to pay GST in certain cases. In this article, we will cover the liability to pay GST in cases of death and dissolution.

Liability after the Death of the Taxpayer

If the business is carried on by the legal heir/representative then the heir/representative will be held liable for the unpaid dues under GST.If the business is discontinued, whether before or after death, the legal heir will be liable to pay the due amount. However, the heir will pay out of the estate of the deceased only to the extent to which the estate is capable of meeting the amount. The legal heir/representative will NOT be personally liable for the pending dues.

For example:

Mr. A sells readymade clothes in his shop. He owes Rs. 1,00,000 as GST. But he passes away and his daughter Ms. X takes over the shop. Then, Ms. X is liable to pay the pending amount of Rs.1,00,000.However, if Ms. X inherits Rs. 70,000 and closes down the shop after her father’s death, then she would be liable to pay only Rs.70,000 as the tax. She can NOT be held liable for the balance Rs. 30,000 since it is beyond the inherited amount.

Liability in case of Company Liquidation

If a company is being wound up due to own motion, or under the orders of a court/tribunal, then the liquidator must intimate the Commissioner regarding his appointment within 30 days. The Commissioner will inform the liquidator within 3 months of the amount of tax/interest/penalty the company has to pay.

If the company is a private companyand does not pay its dues, then the directors of the company will become jointly and severally liable for the dues. In this case, only the directors who were in office during the period when the tax was due will be held liable.If the director can prove to the Commissioner that the non-payment was not due to any negligence or breach of duty due on his/her part, then he/she will not be held liable.

For example

ABC Pvt Ltd Co. (with 3 directors X,Y, Z) decided to wind up its affairs on 1st August 2018 after suffering losses. It appoints Mr. L as liquidator on 5th August 2018. Mr. L must then inform the Commissioner regarding his appointment within 30 days, i.e., 5th September 2018. Let’s say that the Commissioner informs the liquidator on 20th November 2018 (within 3 months) that ABC Co. owes Rs. 3,00,000 taxes for 2017-18 & 2018-19.ABC Pvt Ltd Co. has 3 months to pay, i.e., till 20th February 2019.

However, the company fails to pay. In this case, the 3 directors X, Y & Z will be held liable to pay the full amount. If X & Y fail to pay then Z alone will have to pay Rs. 3,00,000.Only if Z can prove that the non-payment of taxes was not due to his personal negligence, will he be exempt from the liability of paying the company’s taxes.

Liability of Partnership Firm on Dissolution

Each partner will be liable jointly and severally for any GST amount due up to the date of dissolution.

Liability of HUF/AOP on Partition

When the property of the HUF/AOP is divided amongst the various members, then each member or group of members will be liable for all GST dues up to the time of partition, jointly and severally.

Liability when a Trust is Terminated

If the guardianship or trust looks after the business for a beneficiary and pays tax under GST, is terminated then the beneficiary will be held liable for all unpaid GST dues.

Liability in cases of Reconstitution of Firm/AOP

In cases of reconstitutions, all the partners/members who were there before the reconstitution will be held liable jointly and severally for all dues before the date of reconstitution.

Summary of Liabilities under GST in Certain Cases. Thus, we find that the GST due amounts will be recovered from the taxpayer directly or indirectly.

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