Section 85 of GST – Liability in case of transfer of business

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Section 85 of GST – Liability in case of transfer of business

(1) Where a taxable person, liable to pay tax under this Act, transfers his business in whole or in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever, the taxable person and the person to whom the business is so transferred shall, jointly and severally, be liable wholly or to the extent of such transfer, to pay the tax, interest or any penalty due from the taxable person upto the time of such transfer, whether such tax, interest or penalty has been determined before such transfer, but has remained unpaid or is determined thereafter.

(2) Where the transferee of a business referred to in sub-section (1) carries on such business either in his own name or in some other name, he shall be liable to pay tax on the supply of goods or services or both effected by him with effect from the date of such transfer and shall, if he is a registered person under this Act, apply within the prescribed time for amendment of his certificate of registration.

Analysis of this Section

Introduction – This section deals with tax liability that may arise in case of transfer of business. It deals with the following situations:

  • Liability arising before the transfer of business as a whole or in part; and
  • Liability arising post transfer of business as a whole or in part.
  • Such liability may arise on account of sale, gift, lease, leave and license, hire or in any other manner.


(i) Liability arising prior to transfer:

The provision applies when a taxable person who is liable to pay tax transfer his business either wholly or in part, which could be by way of:

  • Sale
  • Gift
  • Lease
  • Leave and license
  • Hire or
  • In any other manner

Tax liability: Both transferor and transferee will be jointly and severally liable for payment of taxes, interest and / penalty due upto the time of transfer of business (wholly or partly).

The joint and several liability will remain even if such amounts were determined and due after the transfer of business.

Interestingly even penal liability, which is quasi-criminal in nature, is sought to be fastened on the transferee, although he would not have been responsible for the non-payment of tax liability by the transferor prior to transfer of business

(ii) Liability arising post transfer

The tax, interest and / or penalty which is determined and which relates to the period, post transfer of business will clearly be the liability of the transferee of business.

It will remain the liability of the transferee whether or not the business is continued in the same name or otherwise.

As a process, in case the transferee is already an existing taxable person, he needs to apply for amendment of his registration certificate within the prescribed time incorporating the changes as to the acquisition of the business (whole or part).

(iii) Going concern transfer

Sale of business as a ‘going concern’ is not taxable as per paragraph 4(c), schedule II of the CGST Act. Read with exemption notification no. 12/2017- Central Tax (Rate) dated 28th June, 2017. Please also refer rule 41 that permits the transferor to upload GST ITC 02 on the common portal for effecting a smooth transfer of all unutilised credits pursuant to a ‘going concern’ transfer.

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