Liability to pay in certain special cases under the proposed GST Regime-2

The purpose of this article is to spread awareness about the soon to be implemented Goods and Service Tax in India. This is the first article of the series of articles covering liability in special cases under GST as enshrined in the Model Law.

Company in liquidation

When any company is being wound up whether under the orders of a court or Tribunal or otherwise, every person appointed as receiver (liquidator) of any assets of a companyshall, within thirty days after his appointment, give intimation of his appointment to the Commissioner.

The Commissioner shall, after making such inquiry or calling for such information as he may deem fit, notify the liquidator within three months from the date on which he receives intimation of the appointment of the liquidator, the amount which in the opinion of the Commissioner would be sufficient to provide for any tax, interest or penalty which is then, or is likely thereafter to become, payable by the company.

When any company is wound up and any tax, interest or penalty determined under this Act on the company for any period, whether before or in the course of or after its liquidation, cannot be recovered, then every person who was a director of such company at any time during the period for which the tax was due, shall jointly and severally be liable for the payment of such tax, interest or penalty, unless he proves to the satisfaction of the Commissioner that such non recovery is not attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.

Guardians, trustees etc.

Where the business in respect of which any tax, interest or penalty is payable under this Act is carried on by any guardian, trustee or agent of a minor or other incapacitated person on behalf of and for the benefit of such minor or other incapacitated person, the tax, interest or penalty shall be levied upon and recoverable from such guardian, trustee or agent, as the case may be, in like manner and to the same extent as it would be determined and recoverable from any such minor or other incapacitated person, as if he were a major or capacitated person and as if he were conducting the business himself, and all the provisions of this Act shall, so far as may be, apply accordingly.

Court of Wards, official trustee, receiver etc.

Where the estate or any portion of the estate of a taxable person owning a business in respect of which any tax, interest or penalty is payable under this Act is under the control of the Court of Wards, the Administrator General, the Official Trustee or any receiver or manager appointed by or under any order of a court, the tax, interest or penalty shall be levied upon and be recoverable from such Court of Wards, Administrator General, Official Trustee, receiver or manager, as the case may be, in like manner and to the same extent as it would be determined and be recoverable from the taxable person as if he were conducting the business himself, and all the provisions of this Act shall, so far as may be, apply accordingly.

Death of a person

Where a person, liable to pay tax, interest or penalty under this Act, dies, then

1. If a business carried on by the person is continued after his death by his legal representative or any other person, such legal representative or other person, shall be liable to pay tax, interest or penalty due from such person under this Act.
2. If the business carried on by the person is discontinued, whether before or after his death, his legal representative shall be liable to pay out of the estate of the deceased, to the extent to which the estate is capable of meeting the charge, the tax, penalty or interest due from such person under this Act.

Whether such tax interest or penalty has been determined before his death but has remained unpaid or is determined after his death.

Partition of HUF/AOP

Where a taxable person, liable to pay tax, interest or penalty under this Act, is a Hindu Undivided Family or an association of persons and the property of the Hindu Undivided Family or the association of persons, as the case may be, is partitioned amongst the various members or groups of members then each member or group of members shall jointly and severally be liable to pay the tax, interest or penalty due from the taxable person under this Act upto the time ofthe partition whether such tax, penalty or interest has been determined before partition but has remained unpaid or is determined after the partition.

Dissolution of a firm

Where a taxable person, liable to pay tax, interest or penalty under this Act, is a firm, and the firm is dissolved, then every person who was a partner shall be jointly and severally liable to pay the tax, interest or penalty due from the firm under this Act, up to the time of dissolution whether such tax, interest or penalty has been determined before the dissolution, but has remained unpaid or is determined after dissolution.

Termination of guardianship/trust

Where a taxable person liable to pay tax, interest or penalty under this Actis the guardian of a ward on whose behalf the business is carried on by the guardian or is a trustee who carries on the business under a trust for a beneficiary then if the guardianship or trust is terminated, the ward or, as the case may be, the beneficiary shall be liable to pay the tax, interest or penalty due from the taxable person upto the time of the termination of the guardianship or trust, whether such tax, interest or penalty has been determined before the termination of guardianship or trust but has remained unpaid or is determined thereafter.

Discontinuation of business

Where a taxable person is a firm or an association of persons or a Hindu Undivided Family and such firm, association or family has discontinued business then the tax payable under this Act by such firm, association or family up to the date of such discontinuance may be determined as if no such discontinuance had taken place and every person who was at the time of such discontinuance, a partner of such firm, or a member of such association or family, shall, notwithstanding such discontinuance, be liable jointly and severally for the payment of tax and interest determined and penalty imposed and payable by such firm, association or family, whether such tax and interest has been determined or penalty imposed prior to or after such discontinuance and subject as aforesaid, the provisions of this Act shall, so far as may be, apply as if every such person or partner or member were himself a taxable person.

Change in the constitution of the business

Where a change has occurred in the constitution of a firm or an association of persons, the partners of the firm or members of association, as it existed before and as it exists after the reconstitution, shall,jointly and severally be liable to pay tax, interest and penalty due from such firm or association for any period before its reconstitution.

LLP to be considered as a Firm

For all the provisions discussed under special liability LLP has to be treated as a firm.

The author is a fellow member of the Institute of Chartered Accountants of India and also a qualified Company Secretary. The author has also done DISA(ICAI), certificate on IFRS (ICAI),  Certificate on Forex and Treasury Management (ICAI), Certificate on Forensic Accounting and Fraud Prevention (ICAI). The author practices as a Chartered Accountant under the name and style of Rishabh Barmecha and Associates and is an expert in auditing, financial investigation, direct and indirect taxation. The author can be reached at rishabhkumarbarmecha@gmail.com or +91 9007909221 or Twitter @CARKBarmecha.

CA Rishabh Barmecha