Proceedings against deceased proprietor not sustainable in GST

Tax Liability on Deceased Proprietor: Order Against Legal Heir Set Aside for Lack of Hearing and Improper Notice.

Issue:

Whether a tax liability imposed on the legal heir of a deceased proprietor of a proprietorship firm under GST can be sustained for the periods 2017-18 to 2019-20, when the proceedings were initiated against the deceased person and the legal heir was not provided an opportunity of hearing.

Facts:

For the periods 2017-18 to 2019-20, a tax liability was imposed on the legal heir of a deceased proprietor of a proprietorship firm. The crucial fact is that the proceedings appear to have been initiated against the deceased proprietor, and the legal heir was not given a proper opportunity of hearing before the demand was raised.

Decision:

In favor of the assessee (Matter remanded): The court held that proceedings against a deceased proprietor could not be sustained. Therefore, the impugned order imposing the tax liability was set aside. The matter was remitted back to the Assessing Authority with a direction to proceed afresh after issuing proper notice to the petitioner (legal heir) as per law, ensuring they are afforded an opportunity of hearing.

Key Takeaways:

• Proceedings Against Deceased Persons are Invalid: A fundamental principle of law is that proceedings cannot be initiated or continued against a person who is deceased. Any order passed against a dead person is generally considered void ab initio (void from the beginning).
• Liability of Legal Heirs (Section 93 CGST Act): Section 93 of the CGST Act specifies the liability of a legal representative in cases of death of a taxable person.
  • If the business is continued by the legal representative after the proprietor’s death, the legal representative is liable for the tax, interest, or penalty due from the deceased.
  • If the business is discontinued (whether before or after death), the legal representative is liable to pay out of the estate of the deceased, to the extent the estate can meet the charge, the tax, interest, or penalty due.
• Requirement of Notice and Hearing for Legal Heirs: Even though Section 93 establishes the liability of legal representatives, it is a sine qua non (an essential condition) that proper notice must be issued to the legal representative, and they must be afforded a reasonable opportunity of hearing before any tax liability is determined against them or the estate of the deceased. An order passed against the deceased without bringing the legal representatives on record and giving them a chance to respond violates principles of natural justice.
• Remand for Procedural Correction: When a tax demand order is found to be procedurally flawed due to the absence of proper notice to the legal heir and a hearing, courts typically set aside the order and remand the matter back to the lower authority. This allows the department to initiate fresh proceedings correctly by notifying the legal heir and providing them with an opportunity to present their case.
• Cancellation of Registration (Section 29 CGST Act): In cases of death of a sole proprietor, Section 29(1)(a) of the CGST Act allows for the cancellation of GST registration on an application by the legal heirs, where the business has been discontinued or transferred due to the proprietor’s death. This process also highlights the need for the legal heir to be involved.