Section 89 of the Central Goods and Services Tax Act, 2017 deals with the liability of directors of a private company for unpaid GST, interest and penalty. The provision is important because, in certain circumstances, it allows the GST authorities to recover the tax liability of a private company from persons who were directors of that company during the relevant period.
Ordinarily, a company is a separate legal entity and its tax liabilities are liabilities of the company. Section 89 creates a specific statutory exception for certain unpaid GST dues of a private company. Where tax, interest or penalty relating to supplies made during a particular period cannot be recovered from the private company, the directors who were in office during that period may become jointly and severally liable, unless they establish the defence provided in the section.
Section 89 also contains a special rule for a private company that is subsequently converted into a public company. In that situation, the statutory director liability under Section 89(1) does not apply to the former private-company directors for the specified tax, interest or penalty relating to the period when the company was private, provided the liability could not be recovered before the conversion. However, the exception does not cover a personal penalty imposed on the director.
What Is Section 89 of the CGST Act?
Section 89 is titled “Liability of directors of private company.”
It contains two subsections:
- Section 89(1) deals with the personal liability of directors where GST dues of a private company cannot be recovered.
- Section 89(2) deals with the conversion of a private company into a public company.
The provision applies to tax, interest or penalty due from the private company in respect of supplies of goods or services or both for a particular period.
The central principle can be understood as follows:
If GST dues of a private company relating to a particular period cannot be recovered from the company, the directors who were directors during that period may be made jointly and severally liable, subject to the statutory defence under Section 89.
This is a statutory liability provision and should not be confused with criminal liability for GST offences under Section 132 or the general provisions concerning offences committed by companies under Section 137.
Text and Structure of Section 89
Section 89(1) provides that, notwithstanding anything contained in the Companies Act, 2013, where tax, interest or penalty due from a private company in respect of any supply of goods or services or both for any period cannot be recovered, every person who was a director of the private company during that period is jointly and severally liable for the payment.
However, the director can avoid this liability by proving that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on the director’s part in relation to the affairs of the company.
Section 89(2) provides a separate rule where a private company is converted into a public company.
Section 89(1) – Liability of Directors
Section 89(1) contains the main rule.
It operates when the following circumstances exist:
- There is a private company.
- The company has a liability for tax, interest or penalty.
- The liability relates to supplies of goods or services or both.
- The liability relates to a particular period.
- The amount cannot be recovered from the private company.
- The person sought to be made liable was a director during the relevant period.
When these conditions are satisfied, the director may become jointly and severally liable for the payment.
What Does “Cannot Be Recovered” Mean?
The expression “cannot be recovered” is central to Section 89.
The provision is concerned with a situation where GST dues remain payable by the private company but the dues cannot be recovered from the company.
Therefore, the mere existence of a GST demand against a private company does not by itself mean that every director immediately becomes personally liable under Section 89.
The statutory provision specifically connects director liability with the inability to recover the relevant tax, interest or penalty from the private company.
This distinction is important because Section 89 is not worded as a general rule that makes directors personally liable for every GST liability of their company.
Who Can Be Held Liable Under Section 89?
Section 89 refers to every person who was a director of the private company during the relevant period.
The relevant period is the period for which the tax liability arises.
For example, suppose a private company has an unpaid GST liability relating to supplies made during the financial year 2024–25.
If a person was a director of the company during that relevant period, Section 89 may become applicable to that person if the company’s GST dues cannot be recovered and the other statutory conditions are satisfied.
The provision therefore focuses on the person’s status as a director during the period to which the liability relates rather than simply asking who happens to be a director when recovery action is initiated.
Joint and Several Liability Under Section 89
Section 89 uses the expression “jointly and severally liable.”
This is significant.
Joint liability means that the directors falling within the statutory provision can be liable together.
Several liability means that the liability can also be enforced against each liable person according to the legal framework.
The provision therefore does not state that the unpaid GST amount must automatically be divided equally among all directors.
For example, assume a private company has unrecovered GST dues consisting of:
- Tax: ₹8 lakh
- Interest: ₹1 lakh
- Penalty: ₹1 lakh
Total: ₹10 lakh.
If Section 89 applies to three directors, the statutory wording does not simply establish a rule that each director is responsible for ₹3.33 lakh.
The liability is joint and several, subject to the statutory defence and the applicable recovery process.
Defence Available to a Director
Section 89 contains an important safeguard for directors.
A director is not without a statutory defence.
The director can prove that the non-recovery of the company’s tax, interest or penalty cannot be attributed to any gross neglect, misfeasance or breach of duty on the director’s part in relation to the affairs of the company.
This means that the director may place relevant facts and evidence before the Commissioner to establish that the failure to recover the company’s GST dues was not attributable to the director’s conduct of the company’s affairs.
Gross Neglect
Gross neglect generally refers to a serious failure to exercise the level of care expected in managing the company’s affairs.
The word “gross” is important because the statutory defence is specifically framed around gross neglect, rather than every minor error or ordinary business mistake.
Misfeasance
Misfeasance generally refers to improper conduct in carrying out an otherwise lawful responsibility.
In the context of Section 89, the question is whether the non-recovery of GST dues can be attributed to such conduct on the director’s part in relation to the company’s affairs.
Breach of Duty
A director may also rely on evidence showing that the non-recovery cannot be attributed to a breach of the director’s duties concerning the affairs of the company.
The facts and evidence of each case therefore become important.
Section 89 Does Not Mean Every Director Automatically Pays Company GST
One of the most important points about Section 89 is that it should not be understood as an automatic personal guarantee given by every director for every GST liability of a private company.
The statutory conditions must be considered.
In particular, Section 89 requires:
- a private company;
- tax, interest or penalty due in relation to supplies;
- a relevant period;
- inability to recover the amount from the company; and
- a person who was a director during that period.
The director also has the statutory defence concerning gross neglect, misfeasance and breach of duty.
Example of Section 89
Suppose ABC Private Limited is registered under GST and carries on a manufacturing business.
During FY 2023–24, the company makes taxable supplies and later becomes liable for additional GST, interest and penalty.
The company does not pay the amount, and the GST authorities are unable to recover the dues from the company.
During FY 2023–24:
- Mr. A was a director.
- Mr. B was a director.
- Mr. C joined the company in FY 2025–26.
If Section 89 becomes applicable to the unrecovered liability relating to FY 2023–24, the relevant question is whether A and B were directors during the period for which the tax was due.
Mr. C’s position would need to be considered separately because he was not a director during the relevant period.
A and B may also establish the statutory defence if they can prove that the non-recovery cannot be attributed to gross neglect, misfeasance or breach of duty on their part.
Section 89 and Conversion of Private Company Into Public Company
Section 89(2) contains a special provision for a company that changes its status from a private company to a public company.
This is an important exception to Section 89(1).
Where:
- a private company is converted into a public company; and
- tax, interest or penalty relating to supplies made during the period when it was a private company could not be recovered before the conversion,
Section 89(1) does not apply to a person who was a director of the private company in relation to that tax, interest or penalty.
In other words, conversion into a public company can affect the operation of Section 89(1) for specified historical liabilities where those liabilities could not be recovered before conversion.
Exception for Personal Penalty
Section 89(2) contains an important proviso.
The protection provided by Section 89(2) does not apply to a personal penalty imposed on the director.
Therefore, it is important to distinguish between:
- tax liability of the private company;
- interest payable by the private company;
- penalty imposed on the company; and
- a personal penalty imposed specifically on the director.
The statutory exception for conversion into a public company does not cover a personal penalty imposed on that director.
Example of Conversion Into a Public Company
Suppose XYZ Private Limited is converted into XYZ Limited.
Before conversion, the company had a GST liability relating to supplies made while it was a private company.
If the tax, interest or penalty relating to that period could not be recovered before the conversion, Section 89(2) provides that Section 89(1) will not apply to persons who were directors of the private company in relation to that specified liability.
However, if a separate personal penalty was imposed on a director, the proviso to Section 89(2) preserves that personal penalty.
Section 89 and Section 88 – Important Difference
Section 88 and Section 89 both deal with liability involving private-company directors, but their circumstances are different.
Section 88
Section 88 deals with a company in liquidation.
It contains provisions relating to:
- the liquidator;
- intimation to the Commissioner;
- determination of an amount sufficient to provide for tax, interest or penalty; and
- liability of directors of a private company where determined dues cannot be recovered after winding up.
Section 89
Section 89 directly deals with the liability of directors of a private company where tax, interest or penalty relating to supplies cannot be recovered from the company.
Section 89 also specifically deals with conversion of a private company into a public company.
| Point | Section 88 | Section 89 |
|---|---|---|
| Main subject | Company in liquidation | Directors of private company |
| Liquidator | Central to the provision | Not required for the basic provision |
| Director liability | Section 88(3) | Section 89(1) |
| Conversion into public company | Not the main subject | Specifically covered under Section 89(2) |
| Main focus | Liquidation and GST dues | Recovery of GST dues from directors |
Section 89 and Section 90
Section 89 applies to directors of private companies.
Section 90, on the other hand, deals with the liability of partners of a firm.
Under Section 90, where a firm is liable to pay tax, interest or penalty, the firm and each partner are jointly and severally liable, subject to the provisions concerning retirement of a partner.
Therefore, the legal structure for a private company and a partnership firm is different.
👉 Read More → Section 90 – Liability of partners of firm to pay tax
Section 89 and Section 137
Section 89 should also be distinguished from Section 137, which deals with offences by companies.
Section 137 addresses situations where an offence has been committed by a company and specifies when persons in charge of and responsible for the conduct of the company’s business may be deemed guilty of the offence. It also contains provisions relating to consent, connivance, negligence and due diligence.
Section 89, however, is a provision concerning payment of tax, interest and penalty where the statutory conditions for director liability are satisfied.
Therefore:
- Section 89 → recovery liability for specified GST dues.
- Section 137 → liability connected with GST offences committed by companies.
These provisions should not be treated as the same mechanism.
Section 89 and Section 132
Section 132 deals with punishment for certain GST offences.
Section 89 does not itself create a criminal offence merely because a company has unpaid GST.
Its subject is the liability for payment of tax, interest or penalty in the circumstances specified in the section.
Criminal prosecution under Section 132 involves separate statutory requirements and should not be confused with recovery proceedings under Section 89.
Practical Documents That May Be Relevant
Where director liability under Section 89 is being examined, relevant evidence may include:
- company GST returns;
- tax invoices;
- books of account;
- GST payment records;
- electronic liability and cash ledger information;
- notices and orders issued under GST law;
- bank statements;
- financial statements;
- board records;
- director appointment and resignation records;
- company correspondence;
- evidence concerning the management of the company’s GST affairs; and
- records demonstrating steps taken to comply with GST requirements.
The exact evidence required depends on the facts and the proceedings.
What Should a Director Do If Section 89 Is Invoked?
A director who receives a communication concerning personal liability should carefully examine the underlying company liability.
Important points include:
1. Identify the relevant tax period
First determine the period for which the tax, interest or penalty relates.
2. Verify whether you were a director during that period
Director appointment and resignation records can be important.
3. Verify the company’s outstanding liability
The director should determine:
- what tax is allegedly payable;
- what interest is involved;
- whether a penalty has been imposed;
- the relevant supply period; and
- whether the liability has already been paid or adjusted.
4. Examine recovery from the company
Section 89 specifically refers to tax, interest or penalty that cannot be recovered from the private company.
Therefore, the recovery position of the company is an important part of the statutory framework.
5. Consider the statutory defence
Where appropriate, the director can provide evidence relevant to the defence under Section 89 concerning gross neglect, misfeasance or breach of duty.
6. Maintain supporting records
Documents showing the director’s actual role, responsibilities, decisions and compliance efforts may become relevant to the defence.
Is a Director Liable for GST Dues Relating to a Period Before Becoming a Director?
Section 89 refers to a person who was a director during the period for which the tax was due.
Therefore, the relevant period is an important consideration.
For example, if a person became a director in April 2025, a GST liability relating exclusively to a period when that person was not a director requires separate examination under the statutory wording.
The facts of the company’s supplies, the tax period and the person’s directorship must be established rather than assuming liability solely from the person’s current position as director.
Is a Former Director Automatically Free From Liability?
Not necessarily.
A director who has resigned should examine the period for which the GST liability arose.
Section 89 focuses on whether the person was a director during the relevant period. Therefore, resignation after the relevant tax period does not by itself answer whether Section 89 can apply.
The precise dates of:
- supply;
- tax period;
- liability;
- directorship; and
- recovery proceedings
can all be relevant.
Does Section 89 Apply Only to Tax?
No.
Section 89 expressly covers:
- tax;
- interest; and
- penalty.
Therefore, the provision is wider than unpaid GST tax alone.
However, the nature of the amount and whether it falls within the statutory wording should be examined carefully in any particular proceeding.
Important Compliance Lessons for Private Companies
Private companies should not treat GST compliance as merely a responsibility of the accounting department.
Because Section 89 can potentially extend liability to directors when the statutory conditions are satisfied, companies should maintain proper systems for:
- GST return filing;
- tax payment;
- reconciliation;
- input tax credit verification;
- invoice management;
- GST notices;
- demand management;
- record preservation;
- internal controls; and
- timely response to GST proceedings.
Directors should also maintain appropriate oversight of significant tax matters.
Key Features of Section 89
| Feature | Details |
|---|---|
| Section | 89 |
| Chapter | Chapter XVI – Liability to Pay in Certain Cases |
| Main subject | Liability of directors of private companies |
| Company covered | Private company |
| Amounts covered | Tax, interest and penalty |
| Relevant transaction | Supply of goods or services or both |
| Trigger | Amount cannot be recovered from the private company |
| Persons covered | Directors during the relevant period |
| Nature of liability | Joint and several |
| Statutory defence | Non-recovery not attributable to gross neglect, misfeasance or breach of duty |
| Conversion provision | Private company converted into public company |
| Personal penalty | Not protected by Section 89(2) proviso |
Section 89 – Practical Example With Multiple Directors
Suppose PQR Private Limited has three directors:
- Director A – director from April 2022 to March 2025
- Director B – director from April 2023 to March 2026
- Director C – director from April 2025 onward
The company has an unrecovered GST liability relating to supplies made during FY 2023–24.
The relevant period is FY 2023–24.
Therefore, A and B were directors during that period, while C was not.
If the statutory conditions under Section 89 are satisfied, the liability of the relevant directors must be examined under Section 89.
The example demonstrates why director appointment dates and the period to which the GST liability relates are important.
It would not be correct to determine liability simply by looking at who is a director on the date when the GST department takes recovery action.
Relationship Between Section 88 and Section 89
Section 88(3) and Section 89(1) may appear similar because both contain provisions concerning directors of private companies.
However, they operate in different contexts.
Section 88(3) applies when a private company is wound up and determined tax, interest or penalty cannot be recovered.
Section 89(1) addresses unrecovered tax, interest or penalty due from a private company in respect of supplies for a particular period.
The two sections therefore need to be examined according to the factual circumstances of the company.
The official CBIC text separately sets out both provisions.
👉 Read More → Section 88 – Liability in case of company in liquidation
Frequently Asked Questions About Section 89
Conclusion
Section 89 of the CGST Act is an important provision dealing with the potential personal liability of directors of private companies for unrecovered GST dues. Where tax, interest or penalty relating to supplies for a particular period cannot be recovered from the private company, directors who served during that period may become jointly and severally liable, subject to the statutory defence.
The provision also recognises a specific situation where a private company is converted into a public company. In such cases, Section 89(2) can prevent application of Section 89(1) to former private-company directors for specified historical liabilities that could not be recovered before conversion, while expressly preserving personal penalties imposed on directors.
For companies and directors, the most important practical considerations are accurate GST compliance, proper record keeping, timely payment of tax, monitoring of GST demands and maintaining evidence concerning the management of the company’s tax affairs. Section 89 should also be read alongside related provisions such as Sections 88, 90, 137 and the applicable GST recovery provisions.
Based on Google's Helpful Content System, this article emphasizes user value, transparency, and accuracy. It incorporates principles of E-E-A-T (Experience, Expertise, Authoritativeness, Trustworthiness).
Why Choose Sarkari Bakery?
Official Information
Government schemes & banking information based on official sources.
Step-by-Step Guides
Simple application process explained for every service.
Regular Updates
Content updated whenever official rules or services change.
People-First Content
Helpful, transparent and user-focused content.
Pingback: Section 88 – Liability in Case of Company in Liquidation - Sarkari Bakery