ICAI Releases Updated Handbook on Liability to Pay in Certain Cases under GST

The Institute of Chartered Accountants of India (ICAI), through its GST & Indirect Taxes Committee, has released the second edition of its Handbook on Liability to Pay in Certain Cases under GST. The updated publication provides a detailed explanation of situations in which GST liability may extend beyond the supplier or recipient and become payable by other persons connected with a business.

The handbook examines Sections 85 to 94 of the Central Goods and Services Tax (CGST) Act, 2017, covering circumstances such as business transfers, amalgamations, mergers, liquidation, changes in business constitution, death of a taxable person and other situations where the law may fasten liability on another person.

The second edition has been updated up to 30 September 2026 and is intended to help chartered accountants, tax professionals, businesses and other stakeholders understand the legal provisions and practical implications of GST liability in different circumstances.

Why Does GST Liability Extend Beyond the Supplier?

Under the normal GST framework, the responsibility to pay tax generally rests with the supplier under the forward charge mechanism. In cases covered by reverse charge, the recipient becomes responsible for paying the tax.

However, certain business and legal situations require a different approach. For instance, a business may be transferred to another person, a company may undergo a merger, a firm may be dissolved, or a taxable person may pass away.

In such circumstances, the original taxpayer may no longer be in a position to discharge the outstanding tax liability. To address these situations and protect government revenue, Chapter XVI of the CGST Act provides a special framework under Sections 85 to 94.

Importantly, the provisions do not automatically make every person associated with a business responsible for its GST dues. Liability arises only when the specific conditions prescribed under the relevant section are satisfied.

Key GST Provisions Explained in the ICAI Handbook

The handbook provides a section-wise explanation of the circumstances in which liability to pay tax, interest or penalty may be extended to persons other than the original taxable person.

1. Transfer of Business - Section 85

Section 85 deals with situations where a taxable person transfers the whole or part of a business through sale, gift, lease, leave and licence, hire or any other manner.

In such cases, the transferor and transferee can become jointly and severally liable for the tax, interest and penalty due up to the date of transfer. This applies even where the liability is determined after the transfer, provided it relates to the period before the transfer.

The provision also makes the transferee responsible for GST on supplies made by the transferee from the date of transfer.

The handbook explains an important distinction between the transfer of individual assets and the transfer of an entire business. Merely purchasing machinery, land or buildings does not necessarily amount to taking over the business under Section 85. The actual nature of the transaction and whether the business itself has been transferred must be examined.

2. Liability of Agent and Principal - Section 86

Where an agent supplies or receives taxable goods on behalf of the principal, both may become jointly and severally liable to pay GST on those goods.

The handbook explains the importance of identifying whether a person is genuinely acting as an agent or merely facilitating a transaction.

One important factor is the name in which the invoice for the subsequent supply is issued. The relevant clarification under Circular No. 57/31/2018-GST dated 4 September 2018 explains how the invoicing arrangement helps determine the relationship between the agent and principal.

This distinction is particularly relevant for commission agents, brokers, auctioneers and other intermediaries involved in the supply of goods.

3. Amalgamation or Merger of Companies - Section 87

Section 87 addresses GST liability in cases involving the amalgamation or merger of companies.

The handbook examines how tax liabilities are dealt with when companies undergo amalgamation or merger and how the effective date of the restructuring affects the determination of liability.

It also discusses the need to distinguish transactions undertaken before and after the effective date of amalgamation or merger.

4. Company in Liquidation - Section 88

Section 88 deals with the responsibility to discharge GST dues when a company enters liquidation.

The handbook discusses the role of the liquidator, the requirement to notify the jurisdictional Commissioner within the prescribed period and the treatment of tax liabilities during liquidation proceedings.

It also examines the circumstances in which directors may face liability where the statutory conditions relating to non-recovery of tax dues are satisfied.

5. Liability of Directors of a Private Company - Section 89

Section 89 deals with the liability of directors of a private company for GST dues in specified circumstances.

Where tax, interest or penalty due from a private company cannot be recovered, the provision may make persons who were directors during the relevant period jointly and severally liable.

However, the law also provides a defence where a director establishes that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty in relation to the company's affairs.

The provision is therefore important for directors who need to understand their responsibilities and the statutory safeguards available to them.

6. Liability of Partners - Section 90

Section 90 addresses the liability of partners where a firm is liable to pay GST.

It provides for joint and several liability of partners in respect of tax, interest and penalty payable by the firm, subject to the statutory provisions.

The handbook discusses the implications of this provision for partners and the importance of examining the relevant period and circumstances when determining liability.

7. Liability of Guardians, Trustees and Other Persons - Sections 91 and 92

Sections 91 and 92 cover situations where the business or taxable person's affairs are managed by another person or authority.

Section 91 deals with the liability of guardians, trustees and agents of minors or other incapacitated persons. Such persons may be responsible for GST dues in relation to the business carried on or managed by them, subject to the statutory conditions.

Section 92 deals with businesses under the control of a Court of Wards, the Administrator General, an Official Trustee, a receiver or a manager, or another person managing the business in a similar capacity.

The handbook explains how GST compliance and tax liability operate when the person managing the business is different from the person who would ordinarily be liable.

8. Special Liability Provisions - Section 93

Section 93 covers certain situations involving the death of a taxable person, partition of a Hindu Undivided Family (HUF), partition of an association of persons and dissolution of a firm.

For example, where a person dies and the business is continued by the legal representative or another person, such person may become liable for the outstanding GST dues.

Where the business is discontinued, the legal representative's liability is generally limited to the extent of the deceased person's estate being capable of meeting the charge.

The provision also addresses liability following partition of an HUF or association of persons and dissolution of a firm.

9. Liability in Other Cases - Section 94

Section 94 deals with the GST consequences of discontinuance, dissolution or reconstitution of a firm, association of persons or HUF.

It provides for the determination and recovery of outstanding tax, interest and penalty despite discontinuance or dissolution. It also addresses joint and several liability of partners or members in specified circumstances.

In cases involving reconstitution, the provision covers the liability of partners or members before and after the change in constitution for dues relating to the earlier period.

Important Compliance and Procedural Safeguards

One of the important aspects highlighted in the handbook is that the existence of a provision under Chapter XVI does not mean that the tax department can automatically recover dues from another person.

The handbook explains a structured process for enforcing liability:

• Identify the underlying tax liability: Determine the tax, interest or penalty payable by the original taxable person.
• Identify the person liable: Establish how the relevant provision under Sections 85 to 94 applies to the person concerned.
• Issue a show cause notice: Clearly mention the underlying demand and the statutory provision under which liability is proposed to be fastened.
• Provide an opportunity of hearing: Allow the concerned person to submit a reply and present their case.
• Pass an adjudication order: Determine the liability through a reasoned order.
• Initiate recovery proceedings: Where the amount remains unpaid, recovery may be initiated under Sections 78 and 79 of the CGST Act.

The handbook also explains the applicable demand provisions, including Sections 73 and 74 for periods up to FY 2023-24 and Section 74A for FY 2024-25 onwards.

This distinction is particularly important where the department seeks to recover GST dues from directors, legal representatives, business transferees or other persons who were not originally responsible for paying the tax.

Judicial Pronouncements and Practical Interpretations

Apart from explaining the statutory provisions, the second edition discusses significant judicial decisions that help clarify the application of Chapter XVI.

Some notable discussions include:

• JR Metal Chennai Ltd. v. Assistant Commissioner of Central Tax: The Andhra Pradesh High Court examined whether the purchase of individual business assets necessarily amounts to a transfer of business under Section 85. The decision highlights the importance of establishing an actual transfer of business.
• HCL Infosystems Ltd. v. Commissioner of State Tax: The Delhi High Court examined the implications of Section 87 in the context of amalgamation and the continuation of proceedings against a company that ceases to exist following an amalgamation order.
• Gunnuru Satya Rama Murthy v. Assistant Commissioner (ST): The Andhra Pradesh High Court considered whether GST dues of a registered society could be recovered from its office-bearer by treating the society as an association of persons under Section 94.

These discussions offer practical guidance on interpreting statutory liability and determining whether the conditions for extending GST liability to another person have actually been fulfilled.

Who Will Benefit from the Updated Handbook?

The publication can be particularly useful for:

• Chartered accountants and tax practitioners handling GST advisory and litigation matters.
• Business owners involved in mergers, acquisitions, restructuring or business transfers.
• Company directors and partners seeking clarity on their potential GST liabilities.
• Legal representatives and successors managing the business of a deceased taxpayer.
• Tax professionals dealing with liquidation, dissolution and recovery proceedings.
• Businesses appointing agents, commission agents and other representatives.