Section 85 of GST – Liability in case of transfer of business. Everything you want to know about GST Section 85. In this section you may find all details for “Liability in case of transfer of business” as per GST Act 2017

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Section 85 of GST – Liability in case of transfer of business

(1) Where a taxable person, liable to pay tax under this Act, transfers his business in whole or in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever, the taxable person and the person to whom the business is so transferred shall, jointly and severally, be liable wholly or to the extent of such transfer, to pay the tax, interest or any penalty due from the taxable person up to the time of such transfer, whether such tax, interest or penalty has been determined before such transfer, but has remained unpaid or is determined thereafter.

(2) Where the transferee of a business referred to in subsection (1) carries on such business either in his own name or in some other name, he shall be liable to pay tax on the supply of goods or services or both effected by him with effect from the date of such transfer and shall, if he is a registered person under this Act, apply within the prescribed time for amendment of his certificate of registration.

Related provisions of the Statute

Section or RuleDescription
Section 2(17)Definition of Business
Section 2(43)Definition of Taxable Person
Section 7Meaning and scope of supply
Section 9Levy and collection
Schedule IIClause 4(c) of Schedule II (i) the business is transferred as a going concern to another person; or (ii) the business is carried on by a personal representative who is deemed to be a taxable person
Section 18Availability of credit in certain circumstances
Section 28Amendment of registration

Analysis of this Section

Introduction –This section deals with tax liability that may arise in case of transfer of business under certain circumstances. It deals with the following situations:


  • Liability arising before the transfer of business as a whole or in part; and
  • Liability arising post transfer of business as a whole or in part.
  • Such liability may arise on account of sale, gift, lease, leave and license, hire or in any other manner.


(i) Liability arising prior to transfer:

The provision applies when a taxable person who is liable to pay tax transfers his business either wholly or in part, which could be by way of:

o Sale
o Gift
o Lease
o Leave and license
o Hire or
o In any other manner

Tax liability: Both transferor and transferee will be jointly and severally liable for payment of taxes, interest or penalty due upto the time of transfer of business (wholly or partly).

The joint and several liability will remain fastened even if such amounts were determined and become due after the transfer of business.

Interestingly even liability to penalty, which is quasi-criminal in nature, is sought to be fastened on the transferee, although transferee would not have been responsible for the non-payment of tax, interest or penalty liability by the transferor prior to transfer of such business. Care must be taken to include ‘indemnity’ from transferor in case of any such liabilities arising in future. Please note that only ‘payment’ of dues (tax, interest AND penalty) is joint-and-several with transferee but the process will only be against transferor.

(ii) Liability arising post transfer

It is the ‘recovery’ of liability in respect of tax, interest and / or penalty which may be determined subsequent to transfer (by follow of process against transferor) and which relates to the period will be the liability of the transferee of business.

As the liability to pay these dues belongs to the ‘business’ carried on by Person A (PAN XYZ123XYZ), when the business is carried on albeit by Person B (PAN PQR456PQR), the encumbrance is not ‘personal’ liability of Person A but ‘Taxable Person A’. Hence, it can be recovered from ‘Taxable Person B’ who is now carrying on the business.

As a process, in case the transferee is already an existing taxable person, he needs to apply for amendment of his registration certificate within the prescribed time incorporating the changes as to the acquisition of the business (whole or part).

(iii) Going concern transfer

Sale of business as a ‘going concern’ [commonly called, lock-stock-barrel basis] is not taxable as per paragraph 4(c), schedule II of the CGST Act read with entry #2 to exemption notification no. 12/2017- Central Tax (Rate) dated 28th June, 2017.One may refer to rule 41 that permits the transferor to upload GST ITC 02 on the common portal for effecting a smooth transfer of all unutilised credits pursuant to a transfer as a ‘going concern’, without any condition of correlation with underlying inputs and / or capital goods.

This provision is not new and is an added measure of responsibility that transferee of business needs to be mindful of to ensure that unpaid liabilities (determined or not, subject to limitation under section 73, 74 or 76) cannot be forfeited on account of sale of business. However, where ‘sale of business’ is effected by ‘sale of assets’, then transferee carries no liability under GST law as all dues will remain with the ‘Taxable Person A’. All recovery provisions against Taxable Person A will not travel to transferee as the business is left behind with Taxable Person A and only assets (on payment of applicable GST) has been transferred to Taxable Person B.

(iv) Type of transfer

This provision does not limit the type of transfer to merger or amalgamation but ‘any’ form of transfer where the resultant is ‘transfer of business’ as a going concern. In fact, the types listed covers permanent or temporary transfer of business but on a going concern basis. It is possible for all arrangements and compromises even for limited duration to come within the operation of this remedial provision for recovery of dues.

Comparative analysis

The liability in respect of transactions, post the date of transfer of business, viz., where the liability is fastened on the transferee is comparable to the erstwhile indirect tax provisions. However, in respect of joint and several liability of both, the transferor and transferee, for liabilities upto the date of transfer is comparable to certain State level VAT laws.

Issues and Concerns

  • In case of transfer of business by whatever method i.e., sale, lease, gift, license etc.., the law does not indicate as to what should be the life of capital goods that is to be reckoned in the hands of transferee, for the purpose of GST laws, would it be five years, as reduced by number of years for which such asset was put to use by the transferor or would it be an additional five years from the date of transfer or would it be as per the actual remaining life of the asset on the basis of actuarial valuation as on the date of such transfer. The GST law is silent on this issue. But the very nature of ‘going concern’ is the recognition of continuity of use of capital goods. Rule 43 and 44 would need to complied without restarting the period of use applicable in these cases;
  • The person taking over the business of another person should, in the normal course as a matter of due diligence, make sure that all the tax liabilities due under GST (CGST & SGST / IGST) laws in relation to transactions made before the date of transfer is fully discharged with applicable interest due, if any. Further such transferee shall also ensure that there is no pending proceeding(s) against him under the said Act, to ensure that the transition process is smooth. It must be noted that the GST law casts the burden of paying tax, interest, penalty or any other amount on the transferee jointly with the transferor of business, though such amounts could relate to a period, prior to the date of transfer.

Frequently Asked Questions

In case of transfer of business, who is liable to pay tax in respect of business transactions prior to such transfer?

Both the transferor and transferee of business (either wholly or partly) are jointly and severally liable to pay tax.

Whether such liability as mentioned above is applicable only for tax?

Such liability is applicable to interest and penalty also in addition to tax.

To what extent the transferor of business is liable to pay tax / interest / penalties?

The transferor of business is jointly and severally liable to pay tax / interest / penalties arisen along with the transferee (whether determined prior to transfer or post transfer) upto the date of transfer of business.

Who is liable to pay tax in respect of supplies made after the date of transfer of business?

The transferee of business is liable to pay tax after the date of transfer of business.

If the transferee carries on an existing business, what are the actions to be taken on transfer?

The transferee is required to make amendments in his registration certificate to give effect to the business transfer.

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