Personal liability of Directors/Partners and Legal heirs under GST for tax arrears

Goods and Services Tax, commonly known as GST, was introduced to replace the complex and multiple tax structure prevalent in India. One of the main aims of GST was to simplify the tax structure and boost the Indian economy. However, GST compliance can be a daunting task for small and medium business owners and start-up founders. In addition to the complex regulations, there is a significant risk of facing legal liabilities in case of non-compliance. In this article, we will explore the personal liability of directors/partners and legal heirs under GST for tax arrears.

Understanding GST Liability

GST liability refers to the amount of tax liability a person or a business entity owes to the government. It is calculated based on the taxable value of goods and services supplied by the person or business entity. The GST liability includes the GST payable, interest, penalty, and any other charges, as applicable. GST liability arises when a person or a business entity fails to comply with the GST regulations.

Personal Liability of Directors/Partners

The personal liability of directors/partners arises when the company or the partnership firm fails to comply with the GST regulations. As per the GST Act, the directors/partners of a company or a partnership firm can be held personally liable for the unpaid GST liability of the company or the partnership firm. The personal liability of the directors/partners can arise in the following scenarios:

1. When the company or the partnership firm fails to pay the GST liability

2. When the company or the partnership firm fails to file the GST returns

3. When the company or the partnership firm avails the input tax credit fraudulently

4. When the company or the partnership firm issues a false invoice or fails to issue an invoice

In case of non-compliance by the company or the partnership firm, the tax authorities can initiate proceedings against the directors/partners and recover the unpaid GST liability from them. The directors/partners can also face criminal proceedings and imprisonment in case of willful evasion of GST.

Liability of Legal Heirs

The liability of legal heirs arises when a person or business entity dies, leaving behind unpaid GST liability. As per the GST Act, the legal heirs of the deceased person or business entity can be held liable for the unpaid GST liability. The liability of legal heirs is limited to the extent of the assets inherited by them from the deceased person or business entity.

The legal heirs can avoid the personal liability by following the following steps:

1. File an application for obtaining the GST registration of the deceased person or business entity

2. File the GST returns of the deceased person or business entity

3. Pay the unpaid GST liability, if any, from the assets inherited

In case the legal heirs fail to comply with the GST regulations, they can face legal proceedings and recover the unpaid GST liability from them. The legal heirs can also be liable to pay interest, penalty, and any other charges, as applicable.

Conclusion

GST compliance is essential for small and medium business owners and start-up founders. Failure to comply with the GST regulations can lead to legal liabilities, including personal liability of directors/partners and legal heirs. It is, therefore, crucial to ensure that the GST compliance is met at all times. In case of any doubts or concerns regarding the GST compliance, it is advisable to seek professional help.