Understanding GST Payment Obligations in Situations of Death and Business Dissolution

This article examines the responsibilities for Goods and Services Tax (GST) payments in instances involving the death of a taxpayer or the dissolution of a business entity. It builds upon prior discussions regarding various GST payment liabilities.

Taxpayer's GST Liability Following Death

When a taxpayer passes away, the responsibility for outstanding GST dues depends on whether the business continues or ceases. If a legal heir or representative continues the business, they become accountable for the unpaid GST. Conversely, if the business is discontinued, either before or after the taxpayer's death, the legal heir is still obligated to settle the dues. However, this liability is strictly limited to the value of the inherited estate; the legal heir or representative is not personally responsible for any amounts exceeding the inherited assets.

Illustrative Example

Consider Mr. A, a readymade clothes retailer, who owes Rs. 1,00,000 in GST and then dies. If his daughter, Ms. X, takes over the business, she becomes liable for the full Rs. 1,00,000 outstanding amount. However, if Ms. X inherits only Rs. 70,000 and decides to close the shop after her father's demise, her tax liability is restricted to Rs. 70,000. She cannot be compelled to pay the remaining Rs. 30,000, as it exceeds the inherited estate.

GST Obligations During Company Liquidation

When a company enters liquidation, either voluntarily or by court order, the appointed liquidator must notify the Commissioner within 30 days of their appointment. Subsequently, the Commissioner will inform the liquidator, within three months, about any outstanding tax, interest, or penalties owed by the company.

For private companies that fail to clear their dues, the directors in office during the period when the tax became payable will be held jointly and severally liable. However, a director can be exempted from this liability if they demonstrate to the Commissioner that the non-payment was not a result of their negligence or breach of duty.

Practical Illustration

Imagine ABC Pvt Ltd Co., with directors X, Y, and Z, opts for liquidation on August 1, 2018, due to financial losses. Mr. L is appointed as the liquidator on August 5, 2018, and must inform the Commissioner by September 5, 2018. If the Commissioner notifies Mr. L on November 20, 2018, that ABC Co. owes Rs. 3,00,000 in taxes for 2017-18 and 2018-19, the company then has until February 20, 2019, to pay. Should the company default, directors X, Y, and Z will all be liable for the full Rs. 3,00,000. If two directors are unable to pay, the remaining director, say Z, must bear the entire amount, unless Z can prove that the non-payment was not due to his personal oversight.

Partnership Firm's GST Liability Upon Dissolution

Upon the dissolution of a partnership firm, all partners are jointly and severally responsible for any outstanding GST amounts incurred up to the date of dissolution.

GST Responsibility for HUF/AOP on Partition

Should a Hindu Undivided Family (HUF) or Association of Persons (AOP) undergo partition, dividing its assets among members, each member or group of members becomes jointly and severally liable for all GST dues accumulated until the time of partition.

Trust's GST Liability After Termination

If a trust or guardianship managing a business for a beneficiary and remitting GST is terminated, the beneficiary will assume liability for all outstanding GST dues.

GST Obligations During Firm/AOP Reconstitution

When a partnership firm or an Association of Persons (AOP) undergoes reconstitution, all partners or members who were part of the entity prior to the reconstitution remain jointly and severally liable for all outstanding dues accumulated before the date of such reconstitution.