Special Provisions Regarding Liability to Pay Tax, Interest, or Penalty – Section 93 of GST

When a taxable person passes away, a business is dissolved, or certain legal entities undergo structural changes, the question arises—who becomes responsible for the outstanding tax liabilities? Section 93 of the CGST Act, 2017, provides detailed provisions for such scenarios. This blog post explores Section 93 in depth to clarify the responsibilities of legal representatives, partners, and beneficiaries in specific cases.

What Happens to Tax Liabilities When a Taxable Person Dies?

Under Section 93(1), the liability to pay tax, interest, or penalty does not extinguish upon the death of the person. Here’s how the liability is handled:

a) If the Business Is Continued After Death

If the deceased person’s business is continued by a legal representative or any other person, then that individual becomes liable to pay any tax, interest, or penalty due from the deceased.

b) If the Business Is Discontinued

If the business is discontinued either before or after the person’s death, the legal representative is responsible to pay the outstanding dues out of the deceased’s estate. However, this liability is limited to the extent to which the estate can meet the charges.

This ensures that government dues are recoverable, even after the demise of the original taxpayer, without imposing unreasonable burdens on the legal heirs beyond the value of the inherited estate.

What if the Taxpayer Is a Hindu Undivided Family (HUF) or an Association of Persons (AOP)?

As per Section 93(2), in the case of partition of a Hindu Undivided Family or an Association of Persons:

• Each member or group of members becomes jointly and severally liable to pay the tax, interest, or penalty due up to the date of partition.

• The liability stands whether the dues were assessed before the partition and remained unpaid, or were determined after partition.

This provision prevents tax evasion by distributing the tax responsibility across all members involved in the partition.

What Are the Implications When a Firm Is Dissolved?

Section 93(3) covers situations where the taxable person is a firm, and the firm is later dissolved. In such cases:

• All persons who were partners in the firm at the time of its existence are jointly and severally liable to pay any outstanding tax, interest, or penalty due from the firm.

• This includes dues assessed both before and after the date of dissolution.

The aim is to safeguard government revenue by ensuring that liabilities are not ignored simply due to the dissolution of the business structure.

Who Is Liable When a Guardian or Trustee Is Involved in a Business?

Section 93(4) addresses scenarios where a business is operated by:

• A guardian on behalf of a ward, or

• A trustee on behalf of a beneficiary.

If the guardianship or trust ends, then:

• The ward or beneficiary becomes liable to pay the tax, interest, or penalty accrued until the date of termination.

• The liability holds whether the amount was determined before or after the end of guardianship or trust.

This ensures continuity in tax compliance even in fiduciary relationships.

How Does the Insolvency and Bankruptcy Code (IBC), 2016 Affect Section 93?

Each subsection of Section 93 begins with the clause “Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016”. This means:

• The provisions of the IBC, 2016 will override Section 93, where applicable.

• In cases where insolvency proceedings are initiated, the treatment of tax liabilities will follow the IBC’s rules on the distribution of the debtor’s estate.

Why Is Section 93 Important for Tax Administration?

Section 93 ensures that tax dues are not left uncollected due to changes in the legal status or structure of taxpayers. It:

• Prevents revenue loss after the death or dissolution of the taxpayer.

• Clearly defines the liability of legal heirs, partners, and beneficiaries.

• Ensures accountability even in the absence of the original taxpayer.

• Harmonizes with the Insolvency and Bankruptcy Code to provide a coherent legal framework.

Conclusion

Section 93 of the CGST Act plays a critical role in preserving the government’s right to recover tax dues under exceptional circumstances such as death, dissolution, partition, or termination of fiduciary responsibilities. Understanding these provisions is crucial not just for legal representatives or business partners, but also for tax professionals and entrepreneurs involved in succession planning or dissolution of business entities.

For professional advice on handling GST liabilities under such circumstances, consulting a qualified chartered accountant or tax advisor is highly recommended.