LIABILITY TO PAY TAX IN CERTAIN CASES – PART-1

[Dr. Sanjiv Agarwal]

Chapter XXII of the Model Law contains Chapter XXII comprising of sections 108 to 115 which deal with liability to pay GST in eight special cases as follows :

Section	Liability
108	Liability in case of transfer of business
109	Liability in case of amalgamation / merger of companies
110	Liability in case of company in liquidation
111	Liability of partners of firm to pay tax
112	Liability of guardians, trustees etc
113	Liability of Court of Wards etc.
114	Special provision regarding liability to pay tax in certain cases (death, discontinued business, hindu undivided family or association of persons, on partition, dissolution of firm, termination of guardianship or trust etc).
115	Liability in other cases (discontinued business of HUF, firm, AOP; change in constitution of firm or AOP etc.)

Transfer of Business

Where any person liable to pay tax, transfers his business in whole or part, by sale, gift, lease, leave and license, hire, or in any other manner, then such person and the  person to whom the business is transferred shall jointly and severally be liable to pay the tax, interest or penalty due from the taxable person up to the time of such transfer, whether such dues has been determined before such transfer, but has  remained unpaid or is determined after such transfer.

The liability of transferee shall be automatic irrespective of : 

1. Consideration
2. Mode and manner of transfer
3. Transfer in whole or part
4. Determination or not of liability

The only pre-requisite is that such tax liability should have remained unpaid or is   determined after such transfer.

The transferee or lessee shall be jointly and severally liable to pay –

• Tax
• Interest
• Penalty

due from or payable by such payable person (transferor)

The transferee may carry on business in his own name or some other name. He shall–

1. get his certificate of registration amended appropriately within prescribed time.
2. pay GST w.e.f. date of transfer on taxable supply of goods and / or services

Business transfers covered under section 109 would inter alia include  -

1. Sale,
2. Gift,
3.  Lease,
4.  Leave and license
5.  Hire, or
6.  In any other manner (e.g. , exchange, rental, disposal etc.)

Amalgamation or merger of companies

With effect from the date of order of merger or amalgamation of two or more  companies, the liability to pay tax, interest and penalty for the period thereafter shall  be of entity which emerges after such merger or amalgamation, as the case may be.

Mergers and amalgamation of companies are governed by section 232 to 234 of the Companies Act, 2013.

When two or more companies are amalgamated or merged by the order of court or of Tribunal or of the Central Government and the order is to take effect from a date earlier to the date of the order and any two or more of such companies have supplied or received any goods and/or services to or from each other during the period commencing on the date from which the order takes effect till the date of the order, then such transactions of supply and receipt shall be included in the turnover of supply or receipt of the respective companies and shall be liable to tax accordingly. Thus, till the date of order of merger or amalgamation is pronounced, companies under the scheme shall be treated as distinct companies and shall be liable to discharge respective tax liabilities.

In case of merger and amalgamation, the scheme may fix an 'appointed date' for  such merger or amalgamation and the Court / Tribunal order may be on a different  date. The actual date of order and effective date may not be the same. The two or more companies shall be treated as distinct companies for the period up to the date of the said order and the registration certificates of the said companies shall be cancelled, where necessary, with effect from the date of the said order.

(To be continued……)