Sections 81 and 82: Void Transfers and the First Charge

Sections 81 and 82 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Two short provisions that decide who gets paid when a business with a GST liability sells assets or fails.

Section 81: where a person, after any amount has become due from him, creates a charge on or parts with property belonging to him or in his possession — by sale, mortgage, exchange or any other mode of transfer — 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 for tax or other sum payable. The proviso: it is not void if made for adequate consideration, in good faith and without notice of the pendency of proceedings or of the tax payable, or with the previous permission of the proper officer. Section 82: notwithstanding anything to the contrary in any law, save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, any amount payable on account of tax, interest or penalty shall be a first charge on the property of that person.

Section 81: the four elements

For a transfer to be void, all of these must be present.

1. An amount has become due. The transfer must be after the liability arose. The section speaks of a person "after any amount has become due from him" — so the timing of the liability relative to the transfer is the first question.

2. A charge created, or property parted with. Sale, mortgage, exchange, or any other mode of transfer whatsoever — including a gift, a settlement, a transfer to a related party, or the creation of a security interest.

3. Property belonging to him or in his possession. Wider than ownership: property in his possession is included.

4. With the intention of defrauding the Government revenue. The mental element, and the heart of the section. The transfer must have been made to defeat the revenue's claim.

The proviso: four ways a transfer survives

The proviso saves a transfer that is:

• for adequate consideration; and
• in good faith; and
• without notice of the pendency of proceedings under the Act, or of the tax or other sum payable;

or, independently,

• with the previous permission of the proper officer.

The first three are cumulative. A transfer for full value, made honestly, by a buyer who did not know of the liability, is protected. One at an undervalue, or to a related party who plainly knew, is not.

The fourth is a complete and separate route, and it is the practical answer for a business that must sell an asset while a demand is outstanding: apply in writing for the previous permission of the proper officer, disclosing the asset, the consideration, the buyer and the intended application of the proceeds. Permission removes the question entirely.

What section 81 means for a buyer

Anyone acquiring business assets from a company with GST exposure faces a real risk, because the section operates against the transfer, not merely against the seller.

Due diligence to do:

• GST portal check — returns filed, any orders, any demands outstanding, registration status;
• the electronic liability register, obtained from the seller;
• a written representation and indemnity on outstanding GST liabilities and pending proceedings;
• a search for DRC-07 orders and DRC-22 attachments;
• evidence of consideration — banking channel, valuation support, no undervalue;
• where any exposure appears, an application for previous permission under the proviso, or retention of part of the consideration against the liability.

Adequate consideration and good faith are the buyer's protection, and both need to be documented at the time, not reconstructed later.

Section 82: the first charge, and its carve-out

"Notwithstanding anything to the contrary contained in any law for the time being in force, save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, any amount payable by a taxable person or any other person on account of tax, interest or penalty which he is liable to pay to the Government shall be a first charge on the property of such taxable person or such person."

Two clauses doing opposite work:

The non obstante clause — "notwithstanding anything to the contrary contained in any law" — gives GST dues priority over other laws, including the ordinary priority of secured creditors under general law.

The carve-out — "save as otherwise provided in the Insolvency and Bankruptcy Code, 2016" — subordinates that priority to the Code.

So the position depends entirely on whether the IBC is in play.

Outside insolvency: GST dues are a first charge on the person's property.

In insolvency: the IBC waterfall governs. Section 53 of the IBC places government dues low in the order of priority in liquidation, below the insolvency resolution process costs, workmen's dues and secured creditors' debts, and financial debts of unsecured creditors. And where a resolution plan is approved under s.31 IBC, claims not part of the plan are extinguished.

That is why the timing and the forum matter far more than the label "first charge".

What this means in practice

For a lender. A security interest over the assets of a GST-registered borrower ranks behind the Government's first charge outside insolvency. The commercial responses are the usual ones: covenants on GST compliance, periodic portal checks, and a requirement that GST returns and payments be current as a condition of drawdown.

For a seller of assets. Where a demand exists or proceedings are pending, obtain previous permission under the proviso to s.81 before completing. It is a short application and it converts a contestable transfer into a clean one.

For a buyer. Diligence on the portal, adequate consideration through banking channels, a documented absence of notice, and an indemnity. Where exposure is known, permission or retention.

For a company in distress. Once a CIRP is admitted, s.82's priority yields to the IBC, and the department is a claimant in that process like any other. Claims must be filed there, and post-admission recovery action outside the Code is generally impermissible.

Key takeaways

• Section 81 voids a transfer made after a liability arises with the intention of defrauding the revenue.
• The proviso protects a transfer for adequate consideration, in good faith and without notice — cumulatively.
• Previous permission of the proper officer is a separate and complete protection; apply for it.
• Section 82 makes tax, interest and penalty a first charge, overriding other laws.
• That priority is expressly subject to the Insolvency and Bankruptcy Code, 2016.
• In insolvency, the IBC waterfall governs and an approved resolution plan extinguishes claims outside it.

Read next

• Section 78 and Section 79: Recovery and Its Modes
• Provisional Attachment: Section 83 and Rule 159
• Section 80: Instalments, DRC-20 and the Default Clause
• Section 82 of CGST Act 2017 — Tax to Be First Charge

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition). Insolvency positions are stated in general terms.