Section 94 of the Central Goods and Services Tax Act, 2017 deals with the liability to pay GST in certain business situations involving a firm, association of persons (AOP) or Hindu Undivided Family (HUF). The provision is particularly important when such a business is discontinued, a firm or AOP is reconstituted, a firm or AOP is dissolved, or an HUF is partitioned in relation to the business carried on by it.
The primary purpose of Section 94 is to ensure that a change in the constitution or status of a business does not prevent the Government from determining and recovering GST liabilities relating to the period before that change.
Section 94 contains three subsections. Section 94(1) deals with discontinuance of business by a firm, AOP or HUF. Section 94(2) deals with a change in the constitution of a firm or AOP. Section 94(3) extends the provisions of Section 94(1), with necessary modifications, to dissolution of a firm or AOP and partition of an HUF in respect of the business carried on by it. The provision is part of Chapter XVI of the CGST Act, which deals with liability to pay tax in certain cases.
What Is Section 94 of the CGST Act?
Section 94 is titled “Liability in other cases.”
It covers situations where a business structure changes or ceases to operate.
The provision addresses three broad circumstances:
- Discontinuance of business by a firm, AOP or HUF.
- Reconstitution of a firm or AOP.
- Dissolution of a firm or AOP or partition of an HUF in relation to its business.
The section ensures that tax liabilities relating to the relevant period remain enforceable even after the business structure changes.
Why Is Section 94 Important?
Businesses do not always operate under the same legal or organisational structure.
A partnership firm may:
- stop its business;
- admit or remove partners;
- change its constitution;
- dissolve completely.
An association of persons may similarly change its membership or discontinue its business.
An HUF may also partition its property and business interests.
Without a specific provision, a change in the legal structure could create practical difficulties in determining who remains responsible for earlier GST liabilities.
Section 94 addresses this problem by establishing liability for the relevant tax periods.
The provision is therefore especially important for historical GST liabilities.
Structure of Section 94
| Subsection | Main situation covered |
|---|---|
| Section 94(1) | Discontinuance of business by a firm, AOP or HUF |
| Section 94(2) | Change in constitution of a firm or AOP |
| Section 94(3) | Dissolution of firm/AOP and partition of HUF business |
Section 94(3) is particularly important because it extends the discontinuance mechanism under Section 94(1) to dissolution and partition situations.
Section 94(1) – Discontinuance of Business
Section 94(1) applies where the taxable person is:
- a firm;
- an association of persons; or
- a Hindu Undivided Family,
and that firm, association or family has discontinued business.
The provision has two important parts.
Section 94(1)(a)
The tax, interest or penalty payable by the firm, AOP or HUF up to the date of discontinuance may be determined as if no discontinuance had taken place.
This means that discontinuing the business does not prevent the GST authorities from determining the liability for the period up to discontinuance.
Section 94(1)(b)
Every person who was:
- a partner of the firm;
- a member of the association; or
- a member of the HUF,
at the time of discontinuance becomes jointly and severally liable for the relevant tax and interest determined and penalty imposed and payable by the firm, AOP or HUF.
This applies whether the tax and interest were determined or the penalty was imposed:
- before discontinuance; or
- after discontinuance.
The provision further states that, so far as may be applicable, the CGST Act operates as if each such person, partner or member were himself a taxable person.
Meaning of Discontinuance of Business
Discontinuance means that the firm, AOP or HUF stops carrying on its business.
For example, suppose a partnership firm operates a wholesale business until 31 March 2026 and permanently stops its business from 1 April 2026.
The discontinuance does not erase GST liabilities relating to supplies and activities up to 31 March 2026.
Section 94 allows those liabilities to be determined even though the business has stopped.
GST Liability Can Be Determined After Discontinuance
An important feature of Section 94(1) is that the tax and interest can be determined, and penalty can be imposed, even after discontinuance.
Therefore, a firm cannot avoid historical GST liability merely because it has stopped its business.
Example
ABC Traders is a partnership firm.
The firm discontinues business on 31 March 2026.
In December 2027, the GST authorities determine that the firm had underpaid tax for the period before discontinuance.
Section 94 allows the liability to be determined even though the firm had already stopped its business.
The persons who were partners at the time of discontinuance can also become jointly and severally liable under Section 94(1)(b).
Liability of Partners at the Time of Discontinuance
The phrase “at the time of such discontinuance” is important.
Section 94(1)(b) specifically covers persons who were partners of the firm at the time the business was discontinued.
Example
Suppose XYZ & Co. has three partners:
- Partner A
- Partner B
- Partner C
The firm stops business on 31 March 2026.
All three are partners on that date.
A GST demand relating to FY 2025–26 is determined in 2028.
Under Section 94(1)(b), the partners who were partners at the time of discontinuance are within the statutory joint-and-several liability for the relevant amount.
Liability of Members of an Association of Persons
The same principle applies to an association of persons.
Where an AOP discontinues its business, the persons who were members at the time of discontinuance can become jointly and severally liable for the relevant GST tax, interest and penalty.
The liability is not eliminated merely because the association has stopped carrying on its business.
Liability of HUF Members
Section 94(1) also covers a Hindu Undivided Family.
Where an HUF discontinues the business carried on by it, the relevant members at the time of discontinuance can become jointly and severally liable for the applicable GST dues covered by the section.
However, where an HUF specifically undergoes a partition in relation to the business, Section 94(3) becomes relevant.
“As If No Discontinuance Had Taken Place”
This phrase in Section 94(1)(a) is important.
The provision effectively prevents the discontinuance of business from stopping the normal GST determination process.
For example, if the department needs to determine:
- whether tax was correctly paid;
- whether additional tax is payable;
- whether interest is due; or
- whether a penalty is imposable,
the discontinuance does not prevent those proceedings from being undertaken for the relevant period.
The GST liability is determined as though the discontinuance had not occurred.
“As If Every Person Were Himself a Taxable Person”
Section 94(1)(b) contains another important legal mechanism.
It states that, subject to the provision, the CGST Act applies as if every such person, partner or member were himself a taxable person.
This is significant because it allows the GST law to continue operating even after the firm, AOP or HUF has discontinued its business.
The statutory deeming provision helps prevent a procedural gap merely because the original business entity has ceased operations.
Section 94(2) – Change in Constitution of a Firm or AOP
Section 94(2) deals with a different situation.
Here, the firm or AOP does not necessarily discontinue its business. Instead, there is a change in its constitution.
For example:
- a new partner may join;
- an existing partner may retire;
- the composition of an AOP may change; or
- there may be another change in the persons constituting the entity.
Section 94(2) provides that the partners of the firm or members of the AOP:
- as they existed before reconstitution, and
- as they exist after reconstitution,
are jointly and severally liable for tax, interest or penalty due from the firm or AOP for any period before its reconstitution.
Why Is Section 94(2) Important?
This provision is particularly important because it can cover both groups:
- persons who were partners or members before reconstitution; and
- persons who become partners or members after reconstitution.
The liability concerns the firm’s or AOP’s dues for a period before the reconstitution.
This prevents a change in constitution from creating a gap in liability for historical GST dues.
Example of Reconstitution of a Firm
Suppose ABC & Co. has three partners:
- A
- B
- C
On 1 April 2026:
- C retires;
- D joins.
The firm continues its business.
This is a change in constitution rather than a complete discontinuance.
Suppose GST liability relates to FY 2025–26, which is before the reconstitution.
Under Section 94(2), the partners as they existed before and after reconstitution can be jointly and severally liable for the tax, interest or penalty due for the period before reconstitution, subject to the applicable provisions.
Therefore, the historical liability is not automatically restricted only to the persons who were partners before the change.
Section 94(2) and Section 90
Section 94(2) expressly states that it applies “without prejudice to the provisions of section 90.”
Section 90 separately deals with the general liability of partners of a firm.
Therefore, Section 94(2) does not replace Section 90.
Instead, it operates alongside the partner-liability framework under Section 90.
Section 90 establishes joint and several liability of the firm and partners, while Section 94(2) specifically addresses liability connected with a change in constitution and historical periods before reconstitution.
Partner Retirement and Historical GST Liability
Suppose Partner A retires from a firm on 31 March 2026.
The firm continues business with Partners B, C and D.
The GST department later identifies a liability relating to FY 2025–26.
Section 94(2) is relevant because the liability relates to a period before reconstitution.
The statutory provision specifically brings the partners as they existed before and after reconstitution within joint-and-several liability for the relevant historical dues.
This is an important distinction from simply assuming that a retired partner or newly admitted partner is automatically outside or inside every GST liability.
The exact period and nature of the liability must be examined.
Section 94(3) – Dissolution of Firm or AOP
Section 94(3) extends the provisions of Section 94(1), so far as may be applicable, where the taxable person is:
- a firm or AOP and the firm or AOP is dissolved; or
- an HUF and the HUF has effected partition with respect to the business carried on by it.
The section further provides that references to “discontinuance” in Section 94(1) are to be construed as references to:
- dissolution; or
- partition,
as applicable.
Dissolution vs Discontinuance
Discontinuance and dissolution are related but are not identical concepts.
A firm may discontinue a particular business while its legal existence or affairs are dealt with separately.
Dissolution, on the other hand, involves the ending of the partnership firm itself.
Section 94(3) ensures that the liability framework under Section 94(1) also applies when the firm or AOP is dissolved.
GST Liability After Dissolution
Suppose XYZ & Co. is dissolved on 31 March 2026.
The firm had GST liabilities relating to supplies made before dissolution.
The GST authorities determine an additional liability in 2028.
Section 94(3) applies the Section 94(1) mechanism to the dissolution.
Accordingly, the partners at the relevant time can remain jointly and severally liable for the applicable GST dues.
Dissolution therefore does not automatically eliminate historical GST liabilities.
Section 94(3) and Partition of HUF
Section 94(3) also applies where an HUF has effected partition with respect to the business carried on by it.
The provision treats the reference to discontinuance in Section 94(1) as a reference to partition.
This means that the partition of an HUF business does not automatically eliminate GST liabilities relating to the business before partition.
The members covered by the provision can remain jointly and severally liable for the relevant tax, interest and penalty.
Example of HUF Partition
Suppose an HUF operates a taxable business.
The business is partitioned among family members on 31 March 2026.
A GST liability relating to the period before partition is later determined.
Section 94(3) applies the Section 94(1) framework to the partition.
The members falling within the statutory provision can therefore be jointly and severally liable for the relevant GST dues.
👉 Read More → Section 93 – Special provisions regarding liability to pay tax, interest or penalty
Section 94 and Historical GST Liabilities
One of the most important concepts under Section 94 is the treatment of past-period liabilities.
A business change does not erase liabilities that arose before that change.
The relevant events covered by Section 94 include:
- discontinuance;
- reconstitution;
- dissolution; and
- HUF partition.
The GST department may therefore continue to determine and recover applicable historical liabilities according to the Act.
Tax Determined Before or After Business Change
Section 94 expressly recognises both situations.
The relevant GST liability may have been:
- determined before discontinuance, dissolution or partition but remained unpaid; or
- determined after the event.
This is particularly important in GST because audits, scrutiny, investigations and adjudication may take place after the business structure has changed.
The legal event itself does not necessarily bring historical tax proceedings to an end.
Section 94 and Tax, Interest and Penalty
Section 94 covers different combinations of liabilities depending on the subsection.
The main amounts involved are:
Tax
GST payable by the firm, AOP or HUF.
Interest
Interest payable under the applicable GST provisions.
Penalty
Penalty imposed and payable under the CGST Act.
Under Section 94(1)(b), the persons covered become jointly and severally liable for the tax and interest determined and penalty imposed and payable by the firm, AOP or HUF.
Joint and Several Liability Under Section 94
The expression “jointly and severally liable” is central to Section 94.
It means that the statutory liability is not automatically divided equally among the partners or members.
For example, if a dissolved partnership firm has ₹20 lakh of applicable GST, interest and penalty liability, the law does not simply state that four partners must each pay ₹5 lakh.
The statutory liability is joint and several, subject to the applicable provisions and recovery process.
The partners or members may have separate rights among themselves under other applicable laws, but such private arrangements do not by themselves eliminate the statutory GST liability.
Section 94 and Reconstitution – Before and After Partners
One of the most significant features of Section 94(2) is that it expressly refers to the partners or members as they existed before and after reconstitution.
This can be illustrated through an example.
Before reconstitution
- A
- B
- C
After reconstitution
- A
- B
- D
Suppose the firm has a GST liability relating to a period before reconstitution.
Section 94(2) brings the partners as they existed before and after reconstitution within the joint-and-several liability framework for that historical liability.
This means that a newly admitted partner cannot assume that the partner’s admission date automatically eliminates exposure to every historical GST liability of the reconstituted firm.
Section 94 vs Section 90
Section 90 deals with the general liability of partners of a firm.
Section 94 deals with specific circumstances involving:
- discontinuance;
- reconstitution;
- dissolution; and
- HUF partition.
The two provisions should be read together.
| Point | Section 90 | Section 94 |
|---|---|---|
| Main focus | General liability of partners | Special business-status situations |
| Firm | Covered | Covered |
| AOP | Not the main subject | Specifically covered |
| HUF | Not the main subject | Specifically covered |
| Reconstitution | Not the main subject | Section 94(2) |
| Discontinuance | Not the main subject | Section 94(1) |
| Dissolution | Not the main subject | Section 94(3) |
| Partner liability | Joint and several | Joint and several in specified circumstances |
Section 94(2) expressly operates without prejudice to Section 90.
Section 94 vs Section 93
Section 93 and Section 94 both deal with special liability situations, but their circumstances are different.
Section 93
Section 93 deals with:
- death of a taxable person;
- partition of an HUF or AOP in the circumstances specified there;
- dissolution of a partnership firm; and
- termination of guardianship or trust.
Section 94
Section 94 deals specifically with:
- discontinuance of business by a firm, AOP or HUF;
- change in constitution of a firm or AOP; and
- dissolution of a firm/AOP or partition of an HUF in relation to its business through Section 94(3).
There can therefore be some overlap in subject matter, particularly regarding dissolution and HUF partition, and the specific statutory provision applicable to the facts should be examined carefully.
Section 94 vs Section 89
Section 89 deals with the liability of directors of private companies.
Section 94 applies to:
- firms;
- associations of persons; and
- HUFs
in the circumstances specified in the section.
The business structure is therefore different.
| Provision | Main persons/business structure |
|---|---|
| Section 89 | Directors of private companies |
| Section 90 | Partners of firms |
| Section 93 | Special liability situations |
| Section 94 | Firms, AOPs and HUFs in specified business-transition situations |
Section 94 and Limited Liability Partnership
The Explanation to Chapter XVI provides that a Limited Liability Partnership formed and registered under the Limited Liability Partnership Act, 2008 is also considered a firm for the purposes of the chapter.
Therefore, the terminology used in Chapter XVI needs to be read together with this statutory Explanation.
Where an LLP is involved in a matter covered by Section 94, the applicable facts and statutory provisions should be examined in light of the Chapter XVI definition.
Section 94 and GST Registration
Section 94 primarily deals with liability.
It does not itself replace the GST registration provisions.
When a firm or AOP undergoes:
- discontinuance;
- reconstitution;
- dissolution;
or when an HUF’s business undergoes partition, separate GST registration and procedural requirements may arise under the applicable provisions.
For example, a change in the constitution of a firm may require an amendment to GST registration details.
Where a business is discontinued or dissolved, cancellation and final-return requirements may also need to be considered.
The liability under Section 94 and the procedural requirements relating to registration are therefore separate issues.
Section 94 and GST Returns
Discontinuance or dissolution does not automatically erase outstanding GST return obligations.
Depending on the circumstances, the taxpayer may need to deal with:
- pending returns;
- final returns;
- outstanding tax;
- interest;
- late fees;
- notices;
- assessments; and
- other statutory requirements.
Section 94 ensures that historical tax liabilities remain capable of determination and recovery even after the relevant business event.
Practical Example – Discontinuance of Partnership Firm
Suppose ABC Traders is a partnership firm with three partners.
The firm discontinues its business on 31 March 2026.
Its GST records show that the firm may have underpaid tax for FY 2025–26.
In September 2027, the GST authorities determine additional tax and interest and impose a penalty.
Under Section 94(1):
- the liability can be determined as if discontinuance had not taken place;
- the partners who were partners at the time of discontinuance can become jointly and severally liable;
- the fact that the determination occurred after discontinuance does not by itself eliminate the liability.
Practical Example – Reconstitution of Firm
Suppose XYZ & Co. originally has Partners A, B and C.
On 1 April 2026:
- Partner C retires;
- Partner D joins.
The firm continues business.
In 2028, GST authorities determine a liability relating to FY 2025–26.
Because the liability relates to a period before reconstitution, Section 94(2) becomes relevant.
The partners as they existed before and after reconstitution are covered by the statutory joint-and-several liability for the relevant pre-reconstitution dues, subject to the applicable law.
Practical Example – Dissolution of Firm
Suppose a partnership firm is dissolved on 30 June 2026.
A GST demand relating to supplies made before dissolution is determined in 2028.
Section 94(3) applies Section 94(1) to the dissolution.
The former partners who were partners at the time of dissolution can therefore be jointly and severally liable for the relevant GST dues.
Practical Example – Partition of HUF Business
Suppose an HUF operates a manufacturing business.
The HUF partitions the business among its members.
The GST department later determines additional tax relating to the period before partition.
Section 94(3) applies the Section 94(1) framework by treating the reference to discontinuance as a reference to partition.
The members covered by the provision can therefore remain jointly and severally liable for the relevant GST dues.
Important Compliance Points Under Section 94
Businesses undergoing a change covered by Section 94 should carefully review their GST position.
1. Identify the exact date
The date of:
- discontinuance;
- reconstitution;
- dissolution; or
- partition
can be critical.
2. Reconcile historical GST liabilities
Review all tax periods before the relevant event.
3. Review pending GST proceedings
Check for:
- notices;
- scrutiny;
- audit;
- investigation;
- assessment;
- demand orders; and
- appeals.
4. Preserve records
Important records include:
- GST returns;
- invoices;
- books of account;
- tax-payment records;
- partnership deeds;
- reconstitution deeds;
- dissolution documents;
- HUF partition documents;
- AOP agreements; and
- GST registration records.
5. Review changes in constitution
Where partners or members change, identify both the persons before and after reconstitution.
6. Complete GST registration formalities
Applicable amendment, cancellation and final-return requirements should be handled separately.
7. Do not assume that business closure ends historical liability
Section 94 specifically prevents that assumption.
Common Mistakes Under Section 94
Mistake 1 – Assuming GST liability ends when business stops
Discontinuance does not erase GST dues relating to the period before discontinuance.
Mistake 2 – Assuming a later GST demand cannot be raised
Section 94 expressly recognises liabilities determined after discontinuance.
Mistake 3 – Assuming only old partners are liable after reconstitution
Section 94(2) covers partners as they existed both before and after reconstitution for pre-reconstitution liabilities.
Mistake 4 – Treating dissolution as a complete escape from GST
Section 94(3) extends the discontinuance framework to dissolution of firms and AOPs.
Mistake 5 – Ignoring HUF partition
Section 94(3) specifically extends the framework to partition of an HUF with respect to the business carried on by it.
Mistake 6 – Treating Section 94 as a substitute for Section 90
Section 94(2) expressly operates without prejudice to Section 90. The two provisions can therefore operate together.
Key Features of Section 94
| Particular | Details |
|---|---|
| Section | 94 |
| Title | Liability in other cases |
| Chapter | Chapter XVI – Liability to Pay in Certain Cases |
| Section 94(1) | Discontinuance of firm, AOP or HUF business |
| Section 94(2) | Reconstitution of firm or AOP |
| Section 94(3) | Dissolution of firm/AOP and HUF partition |
| Amounts covered | Tax, interest and penalty |
| Discontinuance liability | Partners/members at time of discontinuance |
| Reconstitution liability | Partners/members before and after reconstitution |
| Nature of liability | Joint and several in specified cases |
| Historical liability | Can be determined after the relevant business event |
| Section 90 relationship | Section 94(2) operates without prejudice to Section 90 |
| LLP | Treated as a firm for Chapter XVI purposes |
Frequently Asked Questions About Section 94
Conclusion
Section 94 of the CGST Act provides an important framework for dealing with GST liabilities when a firm, association of persons or HUF changes its business status or constitution.
Under Section 94(1), discontinuance of business does not prevent the determination of tax, interest or penalty relating to the period up to discontinuance. The persons who were partners or members at the time of discontinuance can become jointly and severally liable for the applicable dues.
Section 94(2) deals with reconstitution of a firm or AOP and makes the partners or members as they existed before and after reconstitution jointly and severally liable for tax, interest or penalty due for periods before reconstitution, without prejudice to Section 90. Section 94(3) extends the discontinuance framework to dissolution of a firm or AOP and partition of an HUF in relation to its business.
The key lesson from Section 94 is that business closure, reconstitution, dissolution or partition does not automatically erase historical GST liabilities. Businesses should therefore reconcile their GST position before undergoing such changes and preserve all relevant financial, GST and legal records. The exact liability should always be determined by examining the relevant tax period, the date of the business event, the constitution of the entity and the applicable provisions of the CGST Act.
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