Section 85 of GST – Liability in case of transfer of business. Everything you want to know about GST Section 85. In this section you may find all details for “Liability in case of transfer of business” as per GST Act 2017.
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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 up to 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 subsection (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 under certain circumstances. 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 transfers his business either wholly or in part, which could be by way of:
o Leave and license
o Hire or
o In any other manner
Tax liability: Both transferor and transferee will be jointly and severally liable for payment of taxes, interest or penalty due upto the time of transfer of business (wholly or partly).
The joint and several liability will remain fastened even if such amounts were determined and become 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, interest or penalty liability by the transferor prior to transfer of such 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’ [on a lock, stock and barrel basis] 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.One may refer to 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 transfer as a ‘going concern’.
The liability in respect of transactions, post the date of transfer of business, viz., where the liability is fastened on the transferee is comparable to the erstwhile indirect tax provisions. However, in respect of joint and several liability of both, the transferor and transferee, for liabilities upto the date of transfer is comparable to certain State level VAT laws.
Issues and Concerns
- In case of transfer of business by whatever method i.e., sale, lease, gift, license etc.., the law does not indicate as to what should be the life of capital goods that is to be reckoned in the hands of transferee, for the purpose of GST laws, would it be five years,as reduced by number of years for which such asset was put to use by the transferor or would it be an additional five years from the date of transfer or would it be as per the actual remaining life of the asset on the basis of actuarial valuation as on the date of such transfer. The GST law is silent on this issue.
- The person taking over the business of another person should,in the normal course as a matter of due diligence, make sure that all the tax liabilities due under GST (CGST & SGST / IGST) laws in relation to transactions made before the date of transfer is fully discharged with applicable interest due, if any. Further such transferee shall also ensure that there is no pending proceeding(s) against him under the said Act,to ensure that the transition process is smooth. It must be noted that the GST law casts the burden of paying tax, interest, penalty or any other amount on the transferee jointly with the transferor of business, though such amounts could relate to a period, prior to the date of transfer.