What does this Section say?

Section 89 provides that where GST dues of a private company cannot be recovered, every person who was a director of the company during the relevant period may become jointly and severally liable for payment of such dues.

However, directors can avoid liability if they prove that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance, or breach of duty on their part regarding the affairs of the company.

The provision recognizes that private companies are often closely controlled by their directors. Therefore, where tax dues remain unpaid and recovery from the company becomes impossible, the law permits recovery from responsible directors.

This section acts as a deterrent against misuse of the corporate structure for avoiding tax payments. At the same time, it provides protection to honest directors who have acted diligently and responsibly.

The department must first establish that recovery from the company itself is not possible. Only thereafter can action be initiated against directors. The liability generally covers tax, interest, and penalty dues that remain unrecovered.

The objective is to ensure accountability among management personnel and prevent deliberate non-payment of Government dues through private corporate entities.

Example

A private company shuts down without paying GST dues of ₹40 lakh and has no assets left. The department may initiate recovery proceedings against its directors.

Key Points

• Applies to directors of private companies.
• Recovery from directors arises when company recovery fails.
• Directors may defend themselves by proving due diligence.
• Encourages responsible corporate governance.

In One Line

Directors of a private company may become liable if GST dues cannot be recovered from the company.