Directors of companies are generally not personally liable for the company’s GST dues. However, Section 89 of the CGST Act creates a specific exception for private limited companies. Additionally, Section 137 provides for personal liability of directors for offences committed by the company.
This article explains when personal liability attaches to directors and how to defend against it.
Section 89: Personal Liability for Tax Dues
Section 89 provides that where any tax, interest, or penalty remains unpaid by a private company, and the same cannot be recovered from the company, every person who was a director during the relevant period shall be jointly and severally liable, unless they prove that the non-recovery cannot be attributed to any gross neglect, misfeasance, or breach of duty on their part.
The burden of proof is on the director to establish absence of gross neglect.
Section 137: Offences by Companies
Section 137 provides that where an offence is committed by a company, every person who was in charge of and responsible for the conduct of the business at the time of the offence shall be deemed to be guilty. The section also applies to directors, managers, secretaries, and other officers.
Madras High Court Ruling
The Madras High Court has clarified that directors are not automatically liable for a company’s GST dues. The department must first exhaust all recovery remedies against the company before proceeding against the directors.
Defences for Directors
- No gross neglect: Prove that the non-recovery is not attributable to gross neglect on your part.
- No misfeasance: Prove that there was no misfeasance or breach of duty.
- Not in charge: Prove that you were not in charge of the company’s affairs during the relevant period.
- Non-exhaustion of remedies: Challenge the department’s failure to exhaust remedies against the company.
Conclusion
Directors are not automatically personally liable for GST dues. However, Section 89 creates a specific exception for private companies, and Section 137 extends liability to persons in charge of the business. Directors must ensure compliance and maintain records to defend against recovery proceedings.
At Anuj Desai & Associates, we provide expert advisory services on director liability for GST dues. Our team can help you defend against recovery proceedings and protect your personal assets.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.