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      • Grow with Governance: ESG is the umbrella for CSR, says Vedanta's Roma Balwani
      • Grow with Governance: PadUp Ventures' Rajat Jain Demystifies Correlation of Governance and Economic Growth
      • Grow with Governance: Family governance impacts the culture of a family-run business, says Equations Advisors' Mita Dixit
      • Entrepreneurial Board
      • NEW REGULATORY PROVISIONS RELATED TO INDEPENDENT DIRECTORS
      • ESG & ITS IMPORTANCE FROM THE POINT OF VIEW OF BOARD MEETING
      • Start early, don't wait till retirement to become an Independent Director, says Increate Value Advisors' Milind Sarwate
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      • Kindness is key
      • How to Brand Yourself as a Leader of the Company?
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      • Are you hesitant to speak in the Boardroom!
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      • Why do promoters need Independent Directors?
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Independent Directors liability under GST

Independent Directors liability under GST

By D Arvind Managing Partner of DAA LLP
Calendar

May 26 th 2022

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 The Independent directors have an important role to play in any company. They are responsible for improving credibility and governance standards of a company. They are often involved as members in various committees set up by the company amongst various important roles, one of the most important role is to check on the integrity of financial information and ensure that financial controls and systems of risk management are in place.  The independent directors are held liable for any act of omission or commission by the company which has occurred with their knowledge and or with their consent or connivance or where he   has   not   acted   diligently.  For the limited purpose of this article, we will see Independent Directors Liability in the context of GST law in India.  

Independent Directors often go to companies in which they are directors once in a quarter to attend board meetings and very rarely go  beyond attending these meetings. However, they are expected to be diligent and ensure no misappropriation or fraud or any diversion of funds take place in the company in which they are directors.  

Let us examine a case where a company indulges in GST evasion either in the form of suppressing sales in their GST returns to pay lesser tax or take fake GST credits without actually purchasing goods or services or contravene any of the provisions of GST Act or rules with or without intent to evade duty 

An Independent director who is not involved in day-to-day operation will find it very difficult to unearth such frauds committed on the revenue by their company. However, it will not be  too much to expect from him to find out or entertain doubts regarding tax compliance and question the management and the executive directors in the board meetings.  Normally a non-finance professional or a person who is an independent director in a company can ask (in my view should ask) for compliance certificate from the management as well as from the statutory auditors or experts appointed by the company who are managing tax compliance, that the company has complied with the GST liabilities  correctly and on time.  

If the independent directors happen to be a finance professional or a person with finance background, he is expected to examine the Profit & Loss A/c, the balance sheet and verify whether the correlation between purchase & sales and the value added is appropriate and consistent with the company’s business.  

He can also ask for copies of contracts and invoices of goods purchased or services received if he believes that the credit taken is in excess of actual purchases or purchases required for the sales reported by the company.  Every quarter he can ask for payment proof of GST along with GST returns filed with the department. 

On yearly basis the independent director who is a finance professional is expected to ask for Form 9 (Annual Return) and Form 9C (GST Auditors Report) and cross check with the financials. If he finds discrepancy in any of the document mentioned above, he is expected to take it up in the board meeting and ensure his question as well as the answers given by the management is recorded.  If he is not convinced with the reply of the management, he should advise the management to take appropriate action for rectifying the revenue leakage and also ensure to record his recommendation in the minutes of board meeting.  

However, you will hardly find any such participation or questions from Independent directors during board meeting, in companies which are caught for GST evasion. In such a situation let us examine whether Independent directors are liable personally for the fraud committed on the revenue or at least make good of the losses caused on the revenue.  

As per Section 88 of the Central GST Act if a private company is wound up due to liquidation and any tax, interest or penalty determined  under the GST Act cannot be recovered, then every person who was a director of such a company at anytime during the period for which such tax was due will be jointly and severally liable unless he proves to the satisfaction of the commissioner that such non-payment cannot be attributed to any gross    neglect, misfeasance or breach of duty on his part in relation to the office of the company.  As per Section 89 of CGST Act not withstanding anything contained in the companies act the GST, Interest or Penalty due from a private company cannot be recovered for any reason then every person who was the director of private company during such period shall be jointly and severally liable unless he proves that such nonpayment cannot be attributed to any gross    neglect, misfeasance, or breach of duty on his part.  

CGST Act does not make any distinction between executive directors and nonexecutive directors though Section 88 & 89 applies only to private companies. Thus, the provision applies to all type of directors including  executive and nonexecutive directors. The phrase ‘the person responsible for conducting businesses’ has been tactically carved out from the provisions contained under earlier Indirect Tax Laws.  However, the Companies Act and in particular the SEBI Regulations expect Independent Directors to exercise reasonable care, diligence, and skills to ensure that financial statements are correct, sufficient and credible. 

Overlooking any gross anomalies, red flags in the financial statements and failing to ask relevant questions and record those questions and answers to that would amount to gross negligence if not more on the part of independent directors.  

Though as per Companies Act, Independent Directors are liable only for the acts or omission or commission by the company that occurred with their knowledge, attributable through board processes and with their consent or connivance the companies act also provides that if the directors have not    acted    diligently then they are liable to all the stakeholders including tax authorities.  

Thus, Companies Act does not provide any distinction between private company and a public company in the context of diligence to be exercised by the independent directors for the purpose of recovery of any taxes. Therefore, failure on the part of independent directors to be  diligent would amount to gross negligence and make him liable.  In view of above it is advisable for all directors and in particular  independent directors to insist on checking of annual return in Form 9 by an independent expert/Chartered Accountant in spite of  government doing away with mandatory GST Audit by Chartered Accountant in Form 9C.  It may be relevant to state here that most of the MNC’s operate in India.as private companies and hence directly covered by the Section 88 and 89 of CGST Act mentioned above.   

Comments

Divya Momaya
Divya Momaya

June 08, 2022

Very nicely articulated Arvind ji. Indeed very critical for Independent Directors to know liabilities under GST regulations and getting Returns vetted by independent professional can surely give great comfort to such non executive directors.

Leave a Reply

Category

  • All
  • Boardrooms
  • BOARDROOMS
  • Independent Directors
  • Role of Board
  • Mindset Shifts of Boards
  • Independent Directors and Promoters
  • Sustainability / ESG
  • business implication
  • employee exits
  • COMMITTEE MEETINGS
  • Union Budget
  • Independent Director
  • Grow with Governance
  • Grow with Governance
  • INDEPENDENT DIRECTOR
  • Entrepreneurial Board
  • ESG & ITS IMPORTANCE
  • leadership coaching
  • Change Management
  • Advisory Boards
  • Boards
  • Boardroom
  • Brand Yourself as a Leader of the Company
  • Kindness
  • Are you hesitant to speak in the Boardroom!
  • Governance & ESG
  • Directors
  • Independent Directors
  • Corporate Governance
  • Leader development
  • Gratitude, Purpose
  • decision making
  • Systematic Investment Plans in Emotional Intelligence
  • Corporate Governance
  • The Board’s Role in ESG!
  • Balance Boards
  • Agility and Compassion
  • Governance and Board
  • Diversity and Inclusion
  • Directors,Promoter Directors
  • Board Members, Directors and Independent Directors
  • Board and Senior Management
  • New Directors
  • Cyber Insurance
  • Salary Increment
  • Economy Growth
  • Human Resources
  • Generating Wealth Beyond Money
  • Agile Mindset for Leadership
  • Aspiring Independent Directors
  • Board Leadership
  • Corporate Governance & Women on Boards
  • BOARD MEMBER
  • SME
  • WOMEN DIRECTOR
  • BOARD MEMBERS

Archive

  • 2021
    • April (3)
      • Will you drive your vehicle without a dashboard?
      • Are you making SIPs to improve your Emotional Intelligence
      • Corporate Governance needs a Moral Compass – Ethics in Indian Boardrooms!
    • August (9)
      • Grow with Governance: ESG is the umbrella for CSR, says Vedanta's Roma Balwani
      • Grow with Governance: PadUp Ventures' Rajat Jain Demystifies Correlation of Governance and Economic Growth
      • Grow with Governance: Family governance impacts the culture of a family-run business, says Equations Advisors' Mita Dixit
      • Entrepreneurial Board
      • NEW REGULATORY PROVISIONS RELATED TO INDEPENDENT DIRECTORS
      • ESG & ITS IMPORTANCE FROM THE POINT OF VIEW OF BOARD MEETING
      • Start early, don't wait till retirement to become an Independent Director, says Increate Value Advisors' Milind Sarwate
      • The winding road of leadership coaching in the post-pandemic era
      • Challenges of Organizational Culture Change
    • February (4)
      • Re-examination of Purpose by the Boards in Post -Pandemic Era
      • What Makes Great Boards Great! Performance Evaluation by Boards and Role of Independent Directors
      • Promoter Director – Time to become Custodian of Governance!
      • Diversity and Inclusion – The Board Perspective!
    • January (2)
      • New Directors - Have you done your due diligence
      • Cyber Security Insurance and Boards
    • July (7)
      • Why Advisory Boards Are Important for Indian Business Corporates?
      • Grow with Governance: ESG essential to repair the damage economic activities caused to the earth, says CA Shailesh Haribhakti
      • Top 10 areas to contribute in Boards as Independent Directors
      • Top 10 Questions to Ask in Boardrooms!
      • Essential HOWs of Boardroom!
      • Kindness is key
      • How to Brand Yourself as a Leader of the Company?
    • June (6)
      • Leading from the Boardroom
      • Are you hesitant to speak in the Boardroom!
      • The Neem Project a Leadership case study
      • Directors Liability in India
      • Why do promoters need Independent Directors?
      • Corporate Governance Deviation – Infosys Case Study
    • March (4)
      • Board Refreshment: Finding the Right Balance for your Board!
      • HR Governance and Board – How Important Is It?
      • Agility and Compassion: Two Pillars for Boards in the Post Pandemic Era!
      • Modernizing Governance: The Board’s Role in ESG!
    • May (3)
      • Restructuring appraisals in 2021 – Gratitude, Purpose & Meritocracy
      • How do you make your personal Brand?
      • Leadership Coaching: How does it help Leaders
    • October (2)
      • Are Independent Director’s required on the Board?
      • 'Ethics & Governance' lesson should start from school, says Federal Bank's Independent Director, Sankarshan Basu
    • September (3)
      • Grow with Governance: As an Independent Director ensure your voice is heard, says Apurva Purohit
      • Grow with Governance: Push for ESG agenda; pool CSR funds to maximise impact, says Ranganath NK, former MD of Grundfos Pumps
      • Grow with Governance: Boards should prepare companies for different risks, says National Insurance Academy's G Srinivasan
  • 2020
    • August (4)
      • WOMEN DIRECTOR-An Emerge
      • ARE YOUR BOARD MEMBERS SAVVY WITH FINANCIAL TERMS AND EXCEL IN FINANCIAL LITERACY QUOTIENT AS PER COMPANIES ACT 2013 MANDATES.
      • BOARD MEMBER SELECTION- A TASK OF PERFECTION
      • SME IPO – AN OPPORTUNITY TO CAPITALIZE YOUR BUSINESS
    • December (3)
      • Good or bad, Salary Increments always cause a heartburn among employees
      • Is Economic Progress Enough?
      • Emotional Intelligence
    • November (3)
      • Generating Wealth Beyond Money
      • "Agile Mindset for Leadership"
      • Tips for Aspiring Independent Directors
    • September (3)
      • Independent Director
      • Lean Thinking Boards
      • Corporate Governance & Women on Boards
  • 2022
    • August (1)
      • Liability of Independent Directors – An Important Aspect of Corporate Governance
    • February (4)
      • A Hero's Farewell: How to handle employee exits with dignity
      • Green Bonds: An Instrument for Financing a Sustainable Future
      • Tool for effectiveness of Board Committees - Ask Right Questions
      • Russia-Ukraine war and India’s Business Implication
    • July (2)
      • Stagnation or Evolution – Mindset Shifts of Boards when Company sees Stagnated Growth
      • Risk Assessment and Minimization Procedures – Role of Board
    • March (2)
      • A study on Sustainability Report of Container Shipping Companies.
      • India and The ESG impact of Crypto Currencies
    • May (1)
      • Independent Directors liability under GST
    • November (1)
      • Workplace Sexual Harassment and the Role of Board
    • October (2)
      • How many Boards are too many?
      • Women in Indian Boardrooms Vs Diversity = Inversely Proportionate
    • September (2)
      • Organizing for the Future – Important keys to becoming future ready
      • Are you ready to serve on the Board?