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Section 81 of GST – Transfer of property to be void in certain cases
Where a person, after any amount has become due from him, creates a charge on or parts with the property belonging to him or in his possession by way of sale, mortgage, exchange, or any other mode of transfer whatsoever of any of his properties in favour of any other person with the intention of defrauding the Government revenue, such charge or transfer shall be void as against any claim in respect of any tax or any other sum payable by the said person:
Provided that, such charge or transfer shall not be void if it is made for adequate consideration, in good faith and without notice of the pendency of such proceedings under this Act or without notice of such tax or other sum payable by the said person, or with the previous permission of the proper officer.
Analysis of this section
Introduction – This provision protects the Government revenue by avoiding transfer of property by a taxable person to another person. This would prevent any attempt to defraud the revenue by alienating the properties.
Analysis
(i) The said provision would be applicable only when any tax has become due.
(ii) The following acts done by a person, in favour of any another person, after the tax becomes due, would be void
| Situations / cases – Void | Situations / cases – valid |
By way of sale, mortgage, exchange, or any other mode of transfer whatsoever of any of his properties. | Made for adequate consideration and
|
(iii) The transfer will be void, when it is or was with an intention of defrauding the Government revenue. Please note that there is no ‘time limit’ for the look-back period to question transactions. As such, proving intent to defraud appears quite onerous and hardly feasible to prove satisfactorily to reach actual reversal and recovery of tax by reversal of transfers.
Illustrations
1. Mr. Defrauder was served with a notice of demand for Rs. 20 Lakhs on 10th June 2018. He filed a reply for the said notice on 20th June 2018, stating that he was unable to deposit tax dues as he was financially stressed. On 15th June 2018, Mr. Defrauder transferred all the property worth Rs. 35 Lakhs under his name to the name of his wife for a consideration of Rs. 10,000/-. Is this act of Mr. Defrauder valid?
Ans. As per section 81, the said transfer would be void and the property worth Rs. 35 Lakhs would be considered still to be in the hands of Mr. Defrauder.
2. In the above illustration, if transfer of property was for a consideration of Rs. 42 Lakhs to Mr. X who is unaware of the pending proceedings of Mr. Defrauder. The transfer took place on 15th June 2018. Is the act of Mr. Defrauder valid?
Ans. In this case the transaction would be a valid act, since the transfer was made for adequate consideration and also without notice of the pendency of proceeding.
3. On Mr. Perfect, notice was issued on 10th June 2018. However, the same was received by Mr. Perfect on 20th June, 2018. Meanwhile the property of Mr. Perfect was sold to Mr. Perfectionist for Rs 35 Crore. Is the sale void or valid?
Ans. The sale is valid since on the date of sale there was no pending proceeding on Mr. Perfect
Comparative review
This provision is new to Indirect Tax law. It is a concept borrowed from the Income-Tax law to safeguard the revenue. According to the Income Tax (IT) Act, certain transfers can be considered void without a tax-clearance certificate (Section 281B). “This can be transfer of immovable property, that is, sale or mortgage of housing property, any gift, or exchange,”
Frequently Asked Questions
When the transaction in property is void as per section 81?
During the pendency of proceeding under GST Act, if the taxable person transfers the property of his to another person with an intent of defrauding the Government revenue, then such transfer would be considered as void.
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