Section 88 – Liability of Directors of Private Company
Section 88 of CGST Act, 2017 – Liability of Directors of Private Company
Updated on: February 2026 (as applicable till date)
Prepared by: Yours Tax Consultant
1. Objective of Section 88
Section 88 prevents evasion of GST dues by private companies through closure, liquidation or asset depletion.
It makes directors personally liable for unpaid GST dues of the private company under specified circumstances.
2. Statutory Provision – Section 88
Section 88(1):
Where any tax due from a private company
in respect of any supply of goods or services
or both,
for any period,
cannot be recovered,
then,
every person who was a director
of such company
during such period
shall be jointly and severally liable
for the payment of such tax,
unless he proves
that the non-recovery
cannot be attributed
to any gross neglect,
misfeasance or breach of duty
on his part
in relation to the affairs of the company.
Section 88(2):
Where a private company
is converted into a public company,
the directors of such private company
shall not be liable
in respect of any tax due
up to the date of conversion.
3. Conditions for Director’s Liability
Director liability arises only if:
- Tax dues cannot be recovered from the company
- Company is a private company
- Director was in office during default period
- Director fails to prove absence of neglect or breach
4. Meaning of “Cannot Be Recovered”
Non-recovery implies:
- Exhaustion of recovery measures under Section 79
- Company has no attachable assets
- Company is defunct or struck off
Personal recovery is the last resort.
5. Joint and Several Liability
Joint and several liability means:
- Department can recover full tax from any one director
- Internal sharing among directors is irrelevant
Each director carries independent exposure.
6. Defence Available to Directors
A director can escape liability by proving:
- No gross neglect
- No misfeasance
- No breach of duty
Burden of proof lies on the director.
7. Conversion into Public Company
Section 88(2) provides relief where:
- Private company is converted into public company
- Conversion is genuine and lawful
In such cases, directors are not liable for past GST dues.
8. Section 88 vs Section 87
- Section 87: Liability in liquidation (liquidator duties)
- Section 88: Personal liability of directors
Both can operate simultaneously.
9. Practical Scenarios
- Private company struck off with pending GST dues
- Company has no assets for recovery
- Directors proceeded against individually
Section 88 is frequently invoked in such cases.
10. Judicial Principles
Courts have held that:
- Director liability is not automatic
- Department must prove non-recovery from company
- Opportunity of hearing must be given
11. Risk Mitigation for Directors
- Ensure GST compliance during tenure
- Maintain documentary evidence of due diligence
- Resign formally with proper disclosures
12. Related Provisions
13. Professional Insight
Section 88 pierces the corporate veil in GST recovery. Private company directors must treat GST compliance as personal risk management, not merely a corporate obligation.
Disclaimer: This article is prepared based on the CGST Act, CGST Rules, notifications and prevailing legal position as applicable till date. Director liability depends on facts, evidence and judicial interpretation.
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