Section 88 of GST – Liability in case of company in liquidation

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Section 88 of GST – Liability in case of company in liquidation

(1) When any company is being wound up whether under the orders of a court or Tribunal or otherwise, every person appointed as receiver of any assets of a company (hereafter in this section referred to as the “liquidator”), shall, within thirty days after his appointment, give intimation of his appointment to the Commissioner.

(2) The Commissioner shall, after making such inquiry or calling for such information as he may deem fit, notify the liquidator within three months from the date on which he receives intimation of the appointment of the liquidator, the amount which in the opinion of the Commissioner would be sufficient to provide for any tax, interest or penalty which is then, or is likely thereafter to become, payable by the company.

(3) When any private company is wound up and any tax, interest or penalty determined under this Act on the company for any period, whether before or in the course of or after its liquidation, cannot be recovered, then every person who was a director of such company at any time during the period for which the tax was due shall, jointly and severally, be liable for the payment of such tax, interest or penalty, unless he proves to the satisfaction of the Commissioner that such non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.

Analysis of this section

Introduction

This section deals with the tax and other dues of a company in case it is wound up or liquidated. This section has to be read with Rule 160 of GST Rules, 2017.

Analysis

(i) Every person appointed as receiver / liquidator needs to give intimation of his appointment to the Commissioner within 30 days of his appointment.

(ii) Within 3 months from the date of such intimation, the Commissioner, after making necessary enquiry or calling of information, will notify the liquidator to set apart a sum of money that would be sufficient to discharge, in his opinion, the amount of tax, interest and penalty payable by the company.

(iii) When a private company is not able to clear its dues, then every person who was the director at any time during the period, for which tax is due, would be liable jointly and severally to pay the dues.

(iv) However, if any director proves to the satisfaction of the Commissioner that such nonrecovery is not due to his gross neglect, misfeasance or breach of duty, the liability would not arise in the hands of such director.

(v) Rule 160 of GST Rules, 2017 states that where a company is under liquidation, as specified u/s 88 of the GST Act, then the Commissioner shall notify the liquidator for recovery of any amount representing tax, interest, penalty or any amount due under the Act.

(vi) While section 88 provides the provision must be made by liquidator for GST dues ‘then’  or ‘likely thereafter to become payable’, Rule 68 provides only for ‘amount due’ i.e. crystallised liabilities existing on the date of the letter and not for likely liabilities to become payable thereafter.

(vii) As per Rule 160, the intimation must be sent in Form GST DRC – 24 to the Liquidator. This intimation must contain the following details:

  • (a) Name of the company being liquidated
  • (b) The GSTIN of the company being liquidated
  • (c) Date of the letter
  • (d) Period for which demand is being made
  • (e) Demand Order No.
  • (f) Reference to Liquidator’s letter intimating liquidation of the company
  • (g) The actual amount/ likely amount the company owes to State/ Central Government in terms of tax, interest, penalty, other dues and total arrears thereof

(viii) Rule 160 employs the term ‘notify’ the liquidator while Form GST DRC – 24 ‘directs’ the liquidator to make sufficient provision for discharge of current and anticipated liabilities before final winding up of the company.

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