What does this Section say?

Section 85 of the CGST Act deals with situations where a taxable person transfers his business, either wholly or partly, to another person through sale, gift, lease, leave and license, hire, merger, demerger, or any other mode. The section provides that both the transferor (old owner) and the transferee (new owner) shall be jointly and severally liable for any tax, interest, or penalty due up to the date of transfer.

In simple terms, if a business has unpaid GST liabilities before its transfer, the department can recover such dues from either the old owner or the new owner. This provision prevents taxpayers from escaping tax liabilities merely by transferring ownership of the business.

The liability extends to all dues that arose before the date of transfer, whether determined before or after the transfer. Therefore, even if a tax demand is raised later through assessment or investigation, the transferee may still be held liable for dues relating to the period before the transfer.

The section encourages buyers to conduct proper GST due diligence before acquiring any business. Purchasers should verify GST returns, pending notices, audits, investigations, and outstanding liabilities to avoid future disputes.

Where the transferee continues the business, he must obtain GST registration wherever required and comply with all applicable GST provisions. The objective of this section is to protect Government revenue and ensure continuity of tax responsibility despite a change in ownership.

Example

Mr. A sells his manufacturing business to Mr. B. Later, GST dues of ₹15 lakh relating to the period before the sale are detected. The department can recover the amount from either Mr. A or Mr. B.

Key Points

• Applies to transfer of business.
• Transferor and transferee are jointly liable.
• Covers tax, interest, and penalty.
• Due diligence is essential before acquisition.

In One Line

Both old and new owners can be held responsible for GST dues existing before business transfer.