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07 August, 2017

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Directors Will Face Huge Personal Risks Under GST - Why It Should Alert You !

Directors & Partners Will Face Huge Personal Risks Under GST - Why It Should Alert You !

by CA Ankit Gulgulia (Jain)


Let Me Come Straight to the Point in this Post. Earlier under Various Indirect Taxation laws directors of the company were just liable to penalties for any tax issues listed therein. Now, under the GST Regime they will be personally liable to pay Tax, Interest & Penalty in case it is not recoverable from the Company. This is certainly a Big Provision introduced for the First Time in any Indirect Tax Law Regime and will lead to a lot of Open Risk Exposure to the Directors of the Company.

The Law is as under, Section 89(1) of CGST Says,Image result for Risks Alert


Notwithstanding anything contained in the Companies Act, 2013 (18 of 2013), where any tax, interest or penalty due from a private company in respect of any supply of goods or services or both for any period cannot be recovered, then, every person who was a director of the private company during such period shall, jointly and severally, be liable for the payment of such tax, interest or penalty unless he proves that the 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.


Further, Similar Provisions exist for Partners of Partnership Firm under Section 90

Notwithstanding any contract to the contrary and any other law for the time being in force, where any firm is liable to pay any tax, interest or penalty under this Act, the firm and each of the partners of the firm shall, jointly and severally, be liable for such payment:

Provided that where any partner retires from the firm, he or the firm, shall intimate the date of retirement of the said partner to the Commissioner by a notice in that behalf in writing and such partner shall be liable to pay tax, interest or penalty due up to the date of his retirement whether determined or not, on that date:

Provided further that if no such intimation is given within one month from the date of retirement, the liability of such partner under the first proviso shall continue until the date on which such intimation is received by the Commissioner.

Note that Earlier Section 78A of Finance Act, 1994 regarding Service Tax and Similar Provisions under Central Excise & VAT Laws prescribed Penalties on Directors but no recovery proceedings on Directors as such.


 1[78APenalty for offences by director, etc., of company. Where a company has committed any of the following contraventions, namely:-
                    (a) evasion of service tax; or
                    (b) issuance of invoice, bill or, as the case may be, a challan without provision of taxable service in violation of the rules made under the provisions of this Chapter; or
                    (c) availment and utilisation of credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter; or
                    (d) failure to pay any amount collected as service tax to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due,
    
 then any director, manager, secretary or other officer of such company, who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention, shall be liable to a penalty which may extend to one lakh rupees.]

Before Parting...

Clearly, it should be a alert for all directors including the non executive and Independent directors since atleast in such event of non recovery they would be even liable to prove that the 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.

Until Tomorrow, Happy Reading !

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