Section 81 of the CGST Act – Transfer of Property to Be Void in Certain Cases

Section 81 of the Central Goods and Services Tax Act, 2017 deals with situations where a person who has an amount due under GST attempts to transfer, mortgage, sell, exchange, or otherwise deal with property with the intention of defeating or defrauding the Government revenue.

The provision is part of Chapter XV – Demands and Recovery of the CGST Act. Its purpose is to prevent a person from deliberately moving assets out of his ownership or control after GST dues have become payable, thereby making recovery of government dues difficult.

At the same time, Section 81 does not invalidate every transfer made after a GST amount becomes due. The section specifically protects certain bona fide transactions, including transactions made for adequate consideration and in good faith without the required notice, as well as transactions made with the previous permission of the proper officer.

What Is Section 81 of the CGST Act?

Section 81 is titled “Transfer of property to be void in certain cases.”

The provision applies where a person:

1. has an amount due under the GST law;
2. creates a charge over property or parts with property;
3. transfers the property through sale, mortgage, exchange, or another mode;
4. transfers it in favour of another person; and
5. does so with the intention of defrauding Government revenue.

Where these conditions are present, the charge or transfer is treated as void against the Government’s claim for the tax or other amount payable by that person.

In simple terms, a person cannot deliberately dispose of or encumber property merely to prevent the Government from recovering GST dues.

Text of Section 81 of the CGST Act

The statutory provision states:

“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.”

The proviso further protects certain transactions where the statutory conditions are satisfied.

Why Was Section 81 Introduced?

GST law contains several provisions for recovery of tax and other amounts payable to the Government. Section 79, for example, provides various mechanisms for recovery where an amount remains unpaid.

However, recovery can become difficult if a person who owes Government dues deliberately transfers valuable assets to someone else.

For example, imagine that a business has substantial GST dues and owns a commercial property. If the owner intentionally transfers that property to a related person without a genuine commercial transaction, the transfer could potentially make recovery more difficult.

Section 81 addresses this type of situation by providing that a charge or transfer made with the intention of defrauding Government revenue can be void against the Government’s claim.

The provision therefore works as a revenue-protection measure within the GST recovery framework.

When Does Section 81 Apply?

Section 81 is not triggered merely because a person sells or transfers property.

The wording of the provision contains several important elements. Each should be understood separately.

1. An Amount Must Have Become Due

The section begins with the situation where “any amount has become due” from the person.

Therefore, Section 81 is concerned with a situation where there is already an amount payable by the person under the GST law.

The amount may relate to tax or another sum payable under the Act. The section itself subsequently refers to claims relating to “any tax or any other sum payable” by the person.

This is important because the section is not framed as a general restriction on all property transactions of every registered person.

2. The Person Must Create a Charge or Part With Property

Section 81 covers two broad types of conduct:

• creating a charge on property; or
• parting with property.

A charge may involve creating an interest or security over property.

Parting with property is broader and includes transactions through which the person transfers or otherwise gives up the property or his interest in it.

3. The Section Covers Several Modes of Transfer

The provision specifically mentions:

• sale;
• mortgage;
• exchange; and
• any other mode of transfer whatsoever.

Therefore, Section 81 is not restricted only to an outright sale.

A person cannot avoid the provision simply by choosing a different form of transaction if the transaction otherwise falls within the statutory language.

4. The Property May Belong to the Person or Be in His Possession

Section 81 refers to property belonging to the person or in his possession.

This makes the provision broader than a rule dealing only with assets standing strictly in the person’s ownership.

The exact facts and legal rights associated with the property remain important in determining whether Section 81 applies.

5. There Must Be an Intention to Defraud Government Revenue

This is one of the most important elements of Section 81.

The provision applies where the transfer is made “with the intention of defrauding the Government revenue.”

Therefore, the existence of GST dues and a property transfer, by themselves, do not automatically mean that the transfer is void under Section 81.

The statutory requirement concerning intention is significant.

A genuine commercial transaction should therefore not automatically be treated as a fraudulent transfer merely because the seller has GST dues.

What Does “Void as Against Any Claim” Mean?

The wording of Section 81 is important.

It does not simply say that every such transaction is universally void for every purpose. It says that the charge or transfer “shall be void as against any claim” relating to the tax or other sum payable by that person.

The practical significance is that the transfer cannot be used as a device to defeat the Government’s claim for recovery where the statutory conditions of Section 81 are satisfied.

For example, suppose a person owes GST dues and deliberately transfers a valuable property to another person to put that property beyond the reach of recovery. If the statutory requirements are established, the transfer cannot simply be relied upon to defeat the Government’s claim.

The precise legal consequences in an individual case will depend on the facts, the nature of the property, the transaction documents, the relevant recovery proceedings and other applicable laws.

Protection for Genuine Property Transactions

The proviso to Section 81 is equally important.

A charge or transfer will not be void where the transaction falls within the protection provided by the proviso. The statute identifies the following situations:

1. the transfer is made for adequate consideration;
2. the transfer is made in good faith and without the specified notice; or
3. the transfer is made with the previous permission of the proper officer.

These safeguards prevent Section 81 from being interpreted as a blanket prohibition on property transactions by persons having GST liabilities.

Transfer for Adequate Consideration

The first important protection relates to adequate consideration.

Consideration means the value given in return for the property.

For example, if a business sells a property as part of a genuine commercial transaction for an appropriate value, the transaction cannot automatically be treated as a fraudulent transfer merely because the business has outstanding GST dues.

However, whether the consideration is actually adequate is a question that depends upon the facts and circumstances of the transaction.

Parties should therefore maintain proper documentation relating to:

• sale consideration;
• valuation;
• payment through banking channels;
• sale agreement;
• registration documents;
• accounting entries; and
• the commercial purpose of the transaction.

These documents can be important in establishing the genuine nature of a transaction.

Transfer Made in Good Faith

The proviso also protects a transfer made in good faith where the other statutory requirements relating to notice are satisfied.

Good faith generally involves a genuine transaction rather than a transaction structured to defeat the Government’s recovery rights.

For example, a person purchasing property in an ordinary commercial transaction should not automatically be treated in the same manner as a person knowingly participating in a sham transaction designed to remove assets from the reach of tax recovery.

The facts surrounding the transaction therefore become important.

Protection Where There Is No Notice

The proviso specifically refers to absence of notice of:

• the pendency of proceedings under the GST Act; or
• the tax or other sum payable by the transferor.

This means that the statutory protection is connected with the transferee’s knowledge of the relevant GST proceedings or dues.

Therefore, due diligence can be particularly important when purchasing property from a person who may have significant tax liabilities.

A purchaser may need to examine available records and relevant documents before completing a high-value transaction.

Previous Permission of the Proper Officer

Another statutory protection is available where the transaction is made with the previous permission of the proper officer.

This is different from merely informing the tax department after completing a transaction.

The wording specifically refers to previous permission.

Therefore, where Section 81 concerns are relevant, obtaining appropriate permission before completing the transaction can be significant.

The parties should preserve the written permission and supporting records as part of the transaction documentation.

Example of Section 81

Consider a company called ABC Traders.

ABC Traders has outstanding GST dues that have become payable. The company owns a commercial property.

Instead of allowing the property to remain available for recovery, the owner transfers the property to a related person without a genuine commercial purpose and structures the transaction to place the property beyond the reach of the Government.

If the transaction is found to have been made with the intention of defrauding Government revenue, Section 81 can become relevant.

The transfer may be treated as void against the Government’s claim for the outstanding GST amount.

Example of a Genuine Sale

Now consider a different situation.

ABC Traders has GST dues but needs to sell a commercial property as part of a genuine business restructuring. The property is sold for adequate consideration through a documented transaction, and the purchaser acts in good faith without the relevant notice contemplated by the proviso.

The existence of GST dues alone does not mean that Section 81 automatically makes the transaction void.

The statutory protection contained in the proviso must be considered based on the actual facts.

Example of Transfer With Previous Permission

Suppose a taxpayer has an outstanding GST liability and wants to transfer a property for a genuine business purpose.

If the transaction is undertaken with the previous permission of the proper officer, the proviso specifically provides protection against the transfer being treated as void under Section 81.

The permission and the underlying transaction documents should be carefully preserved.

Section 81 and Related GST Recovery Provisions

Section 81 does not operate in isolation. It forms part of Chapter XV of the CGST Act, which deals with demands and recovery.

Section 78 – Initiation of Recovery Proceedings

Section 78 deals with the time for payment of an amount payable pursuant to an order and provides the general framework for initiating recovery proceedings after the prescribed payment period.

Section 81, by contrast, specifically addresses certain transfers of property intended to defeat Government revenue.

Section 79 – Recovery of Tax

Section 79 provides various methods for recovery of amounts that remain unpaid under the CGST Act.

These include mechanisms involving money owed to the defaulter, goods, third parties, movable or immovable property and other statutory recovery methods.

Section 81 supports the recovery framework by addressing certain transactions through which property is transferred to frustrate the Government’s claim.

Section 80 – Payment in Instalments

Section 80 allows the Commissioner, subject to its conditions, to extend payment time or permit payment in monthly instalments not exceeding 24 for eligible amounts.

This is fundamentally different from Section 81.

Section 80 provides a payment facility, while Section 81 addresses certain property transfers intended to defraud Government revenue.

Section 82 – Tax to Be First Charge on Property

Section 82 provides that, subject to the Insolvency and Bankruptcy Code, 2016, amounts payable by a taxable person or other person on account of tax, interest or penalty can constitute a first charge on the property of that person.

Section 81 and Section 82 should not be confused.

Section 81 deals with certain transfers or charges made with the intention of defrauding Government revenue.

Section 82 establishes a statutory first-charge principle, subject to the exception stated in that section.

👉 Read More → Section 82 – Tax to be first charge on property

Section 83 – Provisional Attachment

Section 83 deals with provisional attachment of property, including bank accounts, in specified circumstances for protecting Government revenue.

Section 81 concerns a charge or transfer made by the person in circumstances involving an intention to defraud Government revenue.

Section 83, on the other hand, concerns provisional attachment by the Commissioner where the statutory conditions for protecting Government revenue are satisfied.

Difference Between Section 81 and Section 82

Basis	Section 81	Section 82
Main purpose	Prevent certain transfers designed to defraud Government revenue	Establish first charge on property
Trigger	Property is charged or transferred after an amount becomes due with intention to defraud revenue	Tax, interest or penalty is payable
Main focus	Sale, mortgage, exchange or other transfer	Priority charge over property
Fraudulent intention	Specifically required under Section 81	Not stated as a condition
Important exception	Adequate consideration, good faith and absence of specified notice, or previous permission	Insolvency and Bankruptcy Code exception

The two provisions therefore address different aspects of protection and recovery of Government dues.

Difference Between Section 81 and Section 83

Basis	Section 81	Section 83
Nature	Deals with certain transfers by a person	Deals with provisional attachment by tax authorities
Main concern	Transfer intended to defraud revenue	Protection of Government revenue during specified proceedings
Property transfer	Yes	Attachment rather than voluntary transfer
Bank account	Not specifically the focus	Bank accounts can be provisionally attached
Authority action	Section operates against qualifying transfer/charge	Commissioner may order provisional attachment when statutory conditions are met

Both provisions are revenue-protection mechanisms, but they work differently.

Does Section 81 Stop Every Sale of Property by a Taxpayer?

No.

Section 81 does not state that a taxpayer with outstanding GST dues is prohibited from selling all property.

The section specifically targets a charge or transfer made with the intention of defrauding Government revenue.

In addition, the proviso provides statutory protection for certain transactions made for adequate consideration, in good faith and without the specified notice, or with previous permission of the proper officer.

Therefore, the circumstances surrounding the transaction are extremely important.

Does Having GST Dues Automatically Make a Property Transfer Void?

No.

The statutory language requires more than simply the existence of an amount due.

The transfer must fall within the circumstances described in Section 81, including the requirement concerning intention to defraud Government revenue.

The proviso also creates specific protections for qualifying transactions.

Therefore, it would be incorrect to state that every property transfer made by a taxpayer with outstanding GST dues is automatically void.

What Evidence Can Be Important in a Section 81 Matter?

The exact evidence required depends upon the facts and the nature of the proceedings. However, documents that may become relevant can include:

• GST demand or liability records;
• notices and orders issued under the GST Act;
• details of pending proceedings;
• sale agreements;
• property valuation documents;
• registration documents;
• payment records;
• bank statements;
• accounting records;
• correspondence between the parties;
• evidence relating to the relationship between transferor and transferee; and
• any permission obtained from the proper officer.

The objective is to establish the actual nature and circumstances of the transaction.

Importance of Due Diligence for Buyers

Section 81 is particularly relevant to purchasers dealing with businesses or persons who may have significant tax liabilities.

Before entering into a substantial property transaction, a purchaser may consider appropriate legal and financial due diligence.

Depending upon the circumstances, this can include checking:

• the seller’s tax status;
• pending GST proceedings;
• outstanding tax liabilities;
• notices and orders;
• ownership records;
• encumbrances;
• consideration and valuation;
• payment records; and
• whether any tax authority permission or other documentation is relevant.

The precise scope of due diligence should be determined according to the nature and value of the transaction.

Practical Compliance Checklist Under Section 81

A person involved in a property transaction where GST dues are relevant should carefully consider the following:

For the Seller

• Determine whether any GST amount has become due.
• Review pending GST notices and proceedings.
• Maintain complete records of the proposed transaction.
• Ensure the consideration is properly documented.
• Avoid transactions designed to defeat tax recovery.
• Obtain previous permission from the proper officer where appropriate.
• Preserve evidence of the commercial purpose of the transaction.

For the Buyer

• Conduct reasonable due diligence.
• Verify the seller’s ownership and authority to transfer the property.
• Examine relevant tax and legal information where appropriate.
• Ensure the transaction has genuine commercial substance.
• Document the consideration and payment.
• Maintain evidence supporting good faith.
• Examine whether there is any notice of GST proceedings or dues relevant to the statutory proviso.

Important Point About “Adequate Consideration”

The expression “adequate consideration” should not be treated as meaning merely that some amount was paid.

A transaction involving a nominal amount, unusual payment terms, connected parties or other circumstances may require closer examination.

Whether consideration is adequate depends upon the facts of the particular transaction.

Therefore, parties involved in substantial property transfers should maintain appropriate valuation and transaction documentation rather than relying only on a sale agreement.

Importance of Good Faith

Good faith is another important part of the protection provided by the proviso.

A transaction entered into as a genuine commercial arrangement is materially different from a transaction structured specifically to put assets beyond the reach of tax recovery.

For this reason, documentation showing the commercial rationale, valuation, negotiations, payment and ordinary business purpose can be relevant in demonstrating the nature of a transaction.

👉 Read More → Section 80 – Payment of tax and other amount in instalments

Is Section 81 the Same as Property Attachment?

No.

Section 81 and property attachment are different concepts.

Section 81 addresses certain charges or transfers made by a person after an amount has become due, where the statutory requirement concerning intention to defraud Government revenue is present.

Section 83 separately deals with provisional attachment by the Commissioner for protecting Government revenue during specified proceedings.

Similarly, Section 79 contains various statutory recovery mechanisms.

Therefore, the terms “transfer,” “charge,” “attachment” and “recovery” should not be used interchangeably when explaining GST law.

Section 81 and the Meaning of Government Revenue

The provision is specifically concerned with protecting the Government’s ability to recover tax and other amounts payable under the GST law.

Its central principle is straightforward: a person should not be able to defeat a legitimate Government claim merely by moving or encumbering property after an amount has become due and doing so with the intention of defrauding Government revenue.

At the same time, the law recognises legitimate transactions and therefore expressly provides protections for qualifying transfers.

Key Points to Remember About Section 81

The most important points are:

1. Section 81 is part of Chapter XV – Demands and Recovery of the CGST Act.
2. It deals with certain transfers or charges over property after an amount has become due.
3. The provision covers sale, mortgage, exchange and other modes of transfer.
4. The statutory requirement of an intention to defraud Government revenue is important.
5. A qualifying transfer can be void against the Government’s claim for tax or other amounts payable.
6. Section 81 does not automatically invalidate every property transaction by a person having GST dues.
7. The proviso protects certain transactions made for adequate consideration and in good faith without the specified notice.
8. Previous permission of the proper officer is another statutory protection.
9. Section 81 should be distinguished from Section 79 recovery, Section 82 first charge and Section 83 provisional attachment.
10. Proper transaction documentation and due diligence are important where significant GST liabilities are involved.

Conclusion

Section 81 of the CGST Act, 2017 is an important provision within the GST recovery framework because it addresses attempts to defeat Government revenue through the transfer or encumbrance of property.

The provision applies where an amount has become due and a person creates a charge on or parts with property through sale, mortgage, exchange or another mode of transfer with the intention of defrauding Government revenue. In such circumstances, the charge or transfer is treated as void against the Government’s claim for the relevant tax or other amount payable.

However, Section 81 is not a blanket prohibition on property transactions by taxpayers who have GST liabilities. Its proviso specifically protects qualifying transactions made for adequate consideration and in good faith without the specified notice, as well as transactions made with the previous permission of the proper officer.

For businesses and property purchasers, the practical lesson is that genuine commercial transactions should be properly documented, while transactions involving significant GST liabilities require appropriate legal and tax due diligence. Section 81 should also be read in conjunction with the wider recovery provisions of Chapter XV, particularly Sections 78, 79, 80, 82 and 83.

Frequently Asked Questions About Section 81 of the CGST Act

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