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The CGST Act, 2017 lays down special rules to fix who is responsible for paying tax, interest, or penalty in situations that fall outside the usual "one taxpayer, one liability" pattern — such as business transfers, mergers, liquidation, or the death of a taxpayer. Sections 85 to 94 cover these scenarios. Here's a simple breakdown.
When a registered person transfers their business (by sale, gift, lease, or any other mode), both the transferor and the transferee become jointly and severally liable for any tax, interest, or penalty due up to the date of transfer — whether it was determined before the transfer or only assessed afterward. Once the transferee takes over, they must pay tax on all supplies made from the transfer date onward and update their GST registration accordingly.
Where an agent supplies or receives taxable goods on behalf of a principal, both the agent and the principal are jointly and severally liable to pay the tax due on those goods.
When two or more companies merge under a court or tribunal order that is backdated to an earlier effective date, any supplies exchanged between them during the gap period (between the effective date and the actual order date) are still taxed as if the companies were separate. Their GST registrations are cancelled only from the date of the order — not the earlier effective date.
If a company is being wound up, the liquidator must inform the Commissioner within 30 days of appointment. The Commissioner then has three months to notify the liquidator of the amount needed to cover the company's tax dues. For a private company, if dues cannot be recovered from the company itself, every person who was a director during the relevant period becomes jointly and severally liable — unless they can show the non-recovery wasn't due to their negligence or breach of duty.
Directors of a private company are personally liable, jointly and severally, for unpaid tax, interest, or penalty relating to any period they served as director — unless they can prove the failure to recover wasn't due to their own neglect or misconduct. However, if a private company later converts into a public company, directors are no longer liable for dues from the earlier private-company period (personal penalties are an exception to this relief).
A firm and all its partners are jointly and severally liable for the firm's tax dues. A partner who retires remains liable for dues up to the retirement date, provided the retirement is intimated to the Commissioner in writing. If this intimation isn't given within one month of retirement, the retired partner's liability continues until the Commissioner is actually informed.
If a business is run by a guardian, trustee, or agent on behalf of a minor or a person who is otherwise incapacitated, the tax liability is levied on and recovered from that guardian, trustee, or agent — in the same way it would apply to the beneficiary if they were running the business themselves.
Where a taxable person's estate or business is managed by a court of wards, an Administrator General, an official trustee, or a court-appointed receiver or manager, the tax liability falls on that managing authority, just as it would on the original taxable person.
This section covers several situations:
If a firm, association of persons, or HUF discontinues its business, tax dues are computed as if no discontinuation occurred, and every partner or member at the time of discontinuation remains jointly and severally liable. Similarly, if a firm undergoes a change in its partners (reconstitution), both the outgoing and incoming partners remain jointly and severally liable for dues relating to the period before reconstitution. The same principle applies to dissolution of a firm/AOP or partition of an HUF's business.
Across nearly all these provisions, GST law uses the concept of "joint and several liability." This means the tax department isn't required to divide the demand proportionally — it can recover the entire outstanding amount from any one liable party, or from several of them together, at its discretion. Businesses going through a transfer, merger, dissolution, or change in structure should factor this in, since past dues can follow the people involved even after the change takes place.
Note: This overview is based on the CGST Act, 2017 as originally enacted. Always check for subsequent amendments, notifications, and case law before relying on this for compliance decisions.