Lathi & Co.

Limitation period under GST and Recovery of GST dues from Directors, Partners and Legal Heirs

In this discussion, we examine the limitation period under GST law for recovery of GST demands. We will also examine whether GST can be recovered from Directors, Partners and legal heirs of a person.

Limitation Period:

Limitation period means the time period up to which the revenue authorities can recover tax amount from a person. The limitation period is to be reckoned for each financial year.

The recovery and limitation provisions under GST are quite similar to the procedure under Central Excise and Service tax law. The limitation period depends on the nature of offence in department’s point of view. To understand the nature of offences we refer to Sections 73 and 74 of the CGST Act, 2017.

1. Section 73 – Section 73 deals with errors or mistakes, i.e., where the intention to defraud the revenue does not exist, however, such errors have resulted in short payment or non-payment of tax. Accordingly, the following are covered within its ambit –
2. Tax not paid,
3. Short payment of tax,         Errors, Mistakes – without
4. Claiming wrong GST refund, or,         fraudulent intent
5. Input Tax Credit wrongly availed

• Section 74 – Section 74 deals with fraud, intentional, willful misstatement or suppression of facts in order to evade tax. Accordingly, the following are covered within its ambit –
• Tax not paid, 
• Short payment of tax,        as a result of fraud, Willful
• Claiming wrong GST refund, or,        misstatement, Suppression
• Input Tax Credit wrongly availed

The discussion as to what constitutes fraud or willful suppression and what constitutes errors without intention to defraud revenue is a vast subject with innumerable court and tribunal rulings. That aspect is not the focus of this article, hence not discussed here.

Having understood the nature of offences under Section 73 and 74, we now examine the limitation period for the said offences.

Particulars	Section 73	Section 74
Applicability	Where tax is short paid or not paid or refund is claimed due to errors, Mistakes – without fraudulent intent	Where tax is short paid or not paid or refund is claimed as a result of fraud, Willful misstatement, Suppression
Limitation period expires	Three years from the due date of filing the annual return for the year in which short payment is madeIn case of erroneous refund, three years from date of refund	Five years from the due date of filing the annual return for the year in which short payment is madeIn case of erroneous refund, five years from date of refund
Time limit for issue of notice	Three months prior to the expiry of limitation period mentioned above	Six months prior to the expiry of limitation period mentioned above
Effective time from the financial year end for recovery of GST	Considering that the annual return would be due on December 31 of that year, the effective time from end of financial year, available to the department will be Forty Five months.	Considering that the annual return would be due on December 31 of that year, the effective time from end of financial year, available to the department will be Sixty Nine months.
Penalty	No penalty for amount of tax and interest paid within 30 days of the notice date.If payment is made after 30 days, penalty of 10% of the tax amount or Rs.10,000/- whichever is higher will apply.  If default consists of non-payment of tax declared in return or amount collected as tax, penalty of 10% of the tax amount or Rs.10,000/- whichever is higher will apply, even if the payment is made within 30 days of the notice date. Note that penalty U/s 132 is a separate penalty, not covered in above paragraphs. Section 132 deals with offences such as making supplies without issuing invoice, destruction of evidence, Issuing fake bills, etc. Such penalties may be levied independently of Section 74.	If tax is paid before issue of show cause notice (i.e., in response to letter issued by officer) penalty of 15% of the tax amount will apply. If tax is paid within 30 days of the notice date, penalty of 25% of the tax amount will apply. In any other case, penalty of 50% of the tax amount will apply. Note that penalty U/s 132 is a separate penalty, not covered in above paragraphs. Section 132 deals with offences such as making supplies without issuing invoice, destruction of evidence, Issuing fake bills, etc. Such penalties may be levied independently of Section 74.

Recovery of GST from Partners, Directors, members, and Legal heirs:

1. Personal liability of Directors of a private limited company:

• In accordance with Section 89 of the CGST Act, 2017, where any tax, interest or penalty amount payable by a private limited company cannot be recovered from the said private limited company, such amount can be recovered from the directors of the private limited company.

• If the director can prove that the non payment of GST by the private limited company was not due to cannot be attributed to any gross neglect, misfeasance or breach of duty on his part, such director may not face recovery proceedings under Section 89.

• If the private limited company from whom such recovery is due, is converted to a Public company, then the tax, interest or penalty due from the said company for the period that it was a private limited company cannot be recovered from the persons who were directors of the private limited company. Interestingly, there are no specific provisions for recovery of GST from directors of a public company.

• Notwithstanding the above provisions of law, personal penalties can be imposed on the directors in any case. Refer paragraph G hereunder for personal penalties on directors.

• Personal liabilities of partners:

• In accordance with Section 90 of the CGST Act, 2017, where any tax, interest or penalty amount is payable by a partnership firm or an LLP, the partners shall be jointly and individually be liable to pay the amount due by the partnership firm.

• In case of retirement of a partner, the retiring partner has to intimate the department of such retirement within thirty days of his or her retirement. Upon such intimation, the retiring partner shall not be liable for any dues arising in respect of period after such retirement.

• Failure to intimate the department will result in the retiring partner continuing to be responsible for the GST liabilities of the firm till the date such intimation is actually filed with the department.

• Notwithstanding the above provisions of law, personal penalties can be imposed on the directors in any case. Refer paragraph G hereunder for personal penalties on partners.

• Personal liability of trustees or guardians of a minor or incapacitated person:

• As per Section 91 of the CGST Act, 2017, in case business of a minor person or an incapacitated person is being conducted by a trustee or a guardian, the GST dues of the said minor or incapacitated can be recovered from the said trustee or guardian.

• Personal liability of trustees of charitable trusts, HUF, AOP, etc.:

• As per Section 94 of the CGST Act, 2017, the dues of a charitable trust, AOP, Hindu Undivided Family (HUF), can be recovered, jointly or individually, from the trustees of the trust, members of the HUF, or members of the AOP  

• Liabilities of legal heir:

• As per Section 95 of the CGST Act, 2017, in case of death of a person, if the business of that person is carried on by the legal heir or any other person, such person shall be liable to make the payment of GST dues.
• In case of death of a person, if the business of the person is not continued, the GST dues are to be paid from the estate of the deceased person to the extent the estate of the deceased person can bear.  

• Liability in case of transfer of business:

• As per Section 85, in case of transfer of business, the transferor and the transferee, both shall be jointly and individually responsible for payment of GST dues relating to the period up to the date of transfer of the business.

• Penalty on Directors and Partner in default:

• Penalty provisions U/s 137 of the CGST Act 2017 provide for penalty to be imposed on individual directors of a Company and partners of a partnership firm or an LLP.

• Such penalty can be imposed on the directors of a company and partners of a firm if –
• It is proved that the offence was committed with consent or connivance of the director or partner,
• It is proved that the offence was a result of negligence of the director or partner,
• Such penalty may not be imposed if it is proved that the concerned director or partner was had exercised due diligence in discharge of responsibilities or that such offence was committed without the knowledge of the director or partner.   

We trust the above information is of help to readers. Questions or comments of readers on this article are welcome.

DISCLAIMER : No assurance is given that the revenue authorities/ appellate authorities/ courts would concur with the views expressed herein. Our views are based on the existing provisions of law and our interpretation thereof. We do not assume responsibility to update the views consequent upon such changes, if any. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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© Dipen Lathi

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