Liability for Paying Unpaid GST Dues in Specific Cases Paying taxes is a normal part of running any business, but what happens when GST dues are still pending and the business gets sold, closed, or the owner is no longer around? In such cases, the liability for unpaid GST doesn’t just disappear—it can fall on someone else. This blog explains who might have to take charge and clear those dues. Who Is Liable to Pay Unpaid GST? – The General Rule When GST dues remain unpaid, the law points to who should be responsible in normal situations. Here’s how it works in a straightforward, easy-to-follow way
1. The Registered Taxpayer Is Primarily Liable The person or business that is registered under GST and who has made the taxable supply (sale of goods or services) is the one who has to pay the GST. Example: If a shop sells goods but doesn’t deposit the GST collected from customers, the shop owner is responsible.
2. Liability Exists Even If GST Was Collected but Not Paid If the seller collects GST from customers but doesn’t pay it to the government, it’s a serious issue. The liability still lies with the person who collected the tax. It’s like holding someone else’s money and refusing to hand it over.
3. No Escape by Deregistering or Shutting Down the Business Even if a person cancels their GST registration or shuts their business, they still owe the dues. The government can still demand the pending amount even after the business is closed.
4. Late Fees, Interest, and Penalties Add Up If dues are not paid on time, the liability increases. The taxpayer has to bear additional costs like:
a. Late fees
b. Interest
c. Penalties
So, delaying payment only makes the problem bigger.
You Can Also Read: GST Impact on Delayed Payement, fees & Penalities
5. Responsibility Doesn’t Shift Without a Special Reason In general, no one else is liable to pay unpaid GST unless there’s a special situation (which we’ll discuss in the next section). So in most cases, the person who earned the income or did the business has to pay the tax on it.
Specific Scenarios Where Liability Shifts While the registered taxpayer is usually responsible for paying GST dues, there are certain special situations where this liability shifts to someone else, either partially or
fully. These cases are mentioned under the CGST Act, and they aim to ensure the government doesn’t lose its revenue even if the original taxpayer cannot pay.
Let’s break down these scenarios one by one:
1. Transfer of Business (Going Concern) When a business is transferred—either by sale, gift or otherwise—the transferee (new owner) becomes jointly and severally liable for any unpaid GST dues of the old owner.
a. Section Involved: Section 85 of the CGST Act
b. Example: If Mr. A sells his grocery store to Mr. B, and Mr. A has pending GST dues, Mr. B could also be held responsible for those dues.
2. Amalgamation or Merger of Companies When two or more companies merge, the new entity or the surviving company may become liable for the unpaid GST of all merging units.
a. Section Involved: Section 87
b. Example: If Company X and Company Y merge into Company Z, any past GST dues from X or Y may be recovered from Z.
3. Death of a Sole Proprietor If a sole proprietor passes away, the legal heir or executor of the estate can be held responsible for paying the pending GST dues from the business.
a. Section Involved: Section 85
b. Example: If a small shop owner dies, his son who continues the business might be liable to clear the previous dues.
4. Dissolution of a Partnership Firm When a partnership firm is dissolved, all partners are jointly and severally liable to pay GST dues that were incurred while the firm was active.
a. Section Involved: Section 90
b. Example: A firm dissolves, but before that, it had Rs. 50,000 pending GST. Each partner may be asked to pay the full amount, not just a portion.
5. Company in Liquidation If a company is winding up, the liquidator is required to set aside enough money to pay GST dues before distributing the company’s assets.
a. Section Involved: Section 88
b. Note: Even directors may be held personally liable in case of fraud or negligence
6. Transfer of Property to Avoid Tax If someone tries to avoid paying GST by transferring property to a relative or someone else, the transfer can be declared void by the authorities.
a. Section Involved: Section 81
b. Example: A business owner sells his land to a friend just to avoid paying dues. The department can reverse that deal.
7. Agents Acting on Behalf of Others If an agent supplies goods or services on behalf of someone else, both the agent and the principal can be held liable for GST dues.
a. Section Involved: Section 86
b. Example: A commission agent sells goods for a manufacturer. If GST isn’t paid, both can be held responsible.
Joint and Several Liability Explained The term "joint and several liability" may sound legal, but it simply means that two or more people can be liable for the full, unpaid GST fee, or even individually. Here's how it works:
1. Meaning of Common and Multiple Responsibilities If multiple people are responsible together, the government can summarise the full amount of GST fees from one or all of them. Example: If three partners borrow Rs.90,000 from GST, the government can also request Rs.90,000.
2. Common Scenarios Where This Applies This liability often arises in cases like:
a. Partnership firms (partners are liable)
b. Transfer of business (new and old owners both)
c. Business succession (legal heirs continuing the business)
d. Dissolution of a firm or company
3. No Equal Sharing Rule There is no fixed rule that each person pays only their “share.” If one person is unable to pay, the entire burden can fall on the others.
4. Legal Backing The CGST Act specifically mentions joint and several liability under Sections 85, 90, and others, depending on the situation.
5. Why This Rule Exists This rule is designed to protect government revenue. Even if one liable person disappears or is insolvent, the dues can still be recovered from others connected to the business.
6. Recovery Rights Among Liable Persons While the tax department can recover the full amount from one person, that person can later recover the extra share from the others through civil remedies. Example: If Partner A pays all the dues, they can legally ask Partners B and C to pay back their portions.
7. Tip for Business Owners Always settle accounts clearly during a business transfer or exit. Get written agreements on how GST dues (if any) will be handled.
How to Minimise the Risk of Future GST Liability Whether you're running a business, closing it, or transferring it, there are smart ways to avoid unexpected GST burdens later. Here’s how you can stay on the safe side:
1. File Returns Regularly and On Time Delayed filings often lead to interest, penalties, or confusion. Make it a habit to file GSTR-1, GSTR-3B, and other applicable returns on time—even if there's no business activity.
2. Maintain Proper GST Records Keep all invoices, input tax credit records, payments, and reconciliations in order. This helps if the department raises a query or sends a notice years later.
3. Clear Dues Before Business Transfer or Closure Before selling, merging, or shutting down your business, pay all pending GST. Also, get a no-dues certificate or proper documentation to avoid future surprises.
4. Update Business Details Promptly Always update your GST portal in case of changes, like address, ownership, email, or phone number. It ensures you receive all notices or alerts on time.
5. Use Professional Help When Needed A qualified CA or GST practitioner can help you stay compliant and avoid errors in filing or tax calculations.
6. Avoid Fake Invoices and Input Credit Scams Using or issuing fake invoices or claiming false input tax credit can land you in legal trouble. Stick to genuine transactions with proper GSTIN and invoice details.
7. Settle Liabilities Before Dissolving a Partnership Partners should mutually agree and document how GST dues will be handled if the business ends. Otherwise, one partner may end up paying everything.
8. Communicate Clearly During Succession or Transfer If a business is inherited or transferred, clarify in writing who will handle past GST dues. This protects both the new and old owners.
9. Regularly Reconcile Books with GST Returns A mismatch between books of accounts and GST filings can lead to future disputes. Do monthly or quarterly reconciliations to catch and fix errors early.
10. Keep a GST Compliance Calendar Use digital tools or reminders to track filing dates, payments, and compliance requirements. It reduces the chance of accidental non-compliance.You Can Also Read: What Is a GST Compliance Rating Score and Why Does It Matter?
Conclusion Unpaid GST fees may feel like they were in the past, but they have a sneaky way, especially if you are least expecting it, especially after a business sale, closure, or even after a person's death. Knowing who is responsible for these cases and how the law works is not merely a good practice. Whether you hand over the reins of your business or enter other people's shoes, you can save clear communication and timely compliance with future financial headaches.
FAQ’s 1. Who is primarily responsible for unpaid GST dues? The registered taxpayer who made the taxable supply is usually the one responsible for paying the unpaid GST.
2. Can GST dues be recovered from the new business owner after a transfer? Yes, under Section 85 of the CGST Act, the new owner can be jointly and severally liable for unpaid dues.
3. What happens to GST dues if a sole proprietor dies? The legal heir or person continuing the business may be held liable for unpaid GST dues.
4. Are partners equally liable after the firm dissolves? Yes, all partners are jointly and severally liable, meaning each can be asked to pay the full amount.
5. How can I reduce the risk of future GST issues? File returns on time, maintain clear records, clear dues before business transitions, and seek professional guidance when needed.
People Also Ask 1. What is Section 70 of the CGST Act case law? Section 70 empowers GST authorities to summon any person for inquiry, similar to civil court powers. Courts have upheld that summons must be used reasonably and not as harassment.
2. What is the difference between Section 73 & 74? Section 73 applies to tax short-payment or non-payment without fraud or willful misstatement where as Section 74 applies when there is fraud, suppression, or intent to evade tax, and carries higher penalties.
3. What is the penalty under Section 73 of GST case law? Under Section 73, if tax is paid before notice, there is no penalty. If paid after notice but within 30 days, penalty is 10% of tax or ₹10,000, whichever is higher.
4. What is Section 65 of the CGST rules? Section 65 deals with a departmental audit, where authorities examine records, returns, and books of account of a registered person to verify correctness of tax paid.
5. What is Section 50 of the CGST Act case law? Section 50 relates to interest on delayed GST payment. Courts have clarified that interest is payable only on the net cash liability, not on the portion paid through Input Tax Credit.
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