CGST Section 90 — Liability of partners of firm to pay tax

Section 90 of the CGST Act deals with the responsibility of partners in a firm to pay GST dues. In simple terms, it makes both the firm and each of its partners responsible for any tax, interest, or penalty owed under the GST law.

This section applies to all firms registered under the GST regime. A "firm" here refers to a partnership firm as defined under the Indian Partnership Act, 1932. This includes general partnerships, limited liability partnerships (LLPs), and any other association of persons carrying on business as a firm. The section comes into play whenever the firm has a liability related to GST, such as unpaid tax, interest on late payments, or penalties for non-compliance.

Here's a breakdown of the key conditions and exceptions:

• Joint and Several Liability: The most important aspect is the concept of "joint and several" liability. This means that the GST authorities can recover the entire amount due from the firm's assets, from any one partner individually, or from a combination of the firm and its partners. The authorities are not required to pursue each partner for a proportionate share of the liability.

• Contractual Agreements Irrelevant: Section 90 explicitly states that any agreement among partners about who bears what responsibility is irrelevant when it comes to GST liability. Even if the partnership deed stipulates that one partner is solely responsible for tax matters, all partners remain jointly and severally liable to the GST authorities.

• Retirement of a Partner: This section includes two crucial provisos (or conditions) dealing with partners who retire from the firm.

  • Intimation Requirement: When a partner retires, either the retiring partner or the firm must inform the GST Commissioner in writing about the retirement date. This intimation is a key step in limiting the retiring partner's liability.

  • Liability Until Retirement Date: The retiring partner remains liable for any tax, interest, or penalty that was due up to their retirement date, regardless of whether it was already determined by the GST authorities on that date or not.

  • Continuation of Liability: If the GST Commissioner is not notified within one month of the partner's retirement, the retiring partner's liability continues until the date the Commissioner actually receives the intimation. This highlights the importance of prompt notification.

Let's illustrate with a few examples:

• Example 1: Unpaid GST. Suppose a partnership firm, "XYZ Traders," fails to pay its GST liability of ₹50,000. The GST authorities can recover this amount from XYZ Traders as a whole, from partner X, from partner Y, from partner Z, or from any combination of these.

• Example 2: Retirement Scenario. Partner A retires from a firm, "ABC Associates," on 31st March. The firm has a GST liability that is still under assessment at the time of A's retirement. Even though the exact amount isn't yet determined, A is liable for any tax, interest, or penalty that eventually gets assessed for the period up to 31st March, assuming the GST authorities were promptly notified about A's retirement. If no intimation is provided and assessment order is passed after a year, A will still be liable.

• Example 3: Failure to Notify. Consider a similar scenario to Example 2, but this time, neither the firm nor the retiring partner notifies the GST Commissioner about the retirement within one month. Partner A’s liability for ABC Associates' GST dues continues until the date the Commissioner actually receives the notification, which could be several months later. This exposes A to potential liabilities arising even after their retirement date.

Important Considerations for Business Owners:

• Due Diligence: Partners should ensure the firm maintains proper records and complies with all GST regulations to avoid penalties and interest.
• Partnership Agreements: While partnership agreements cannot override the GST Act, they can define internal responsibilities and indemnity clauses to protect partners from disproportionate liabilities.
• Retirement Planning: Partners considering retirement should ensure timely notification to the GST Commissioner. Document everything meticulously.

As of the latest review of the CGST Act and associated notifications, there have been no significant amendments to Section 90 that fundamentally alter the above explanation. However, businesses should always consult the latest official notifications and seek professional advice to ensure full compliance. It is crucial to regularly monitor for any changes to GST regulations as they can impact these liabilities.