Demand Order Against Deceased Proprietor Invalid; SCN Must be Issued to Legal Representative

Issue:

Whether a show cause notice (SCN) and a subsequent demand order issued in the name of an assessee firm, after the death of its sole proprietor, are valid, or if it is a mandatory prerequisite that the SCN be issued to the legal representative of the deceased proprietor.

Facts:

The proprietor of the assessee firm died on March 18, 2023. Subsequently, on September 25, 2023, a show cause notice (SCN) was issued in the name of the firm. This SCN was uploaded on the ‘Additional Notices and Orders’ tab on the GST portal and remained unanswered. Following this, an impugned order was passed under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act), determining tax liability. The petitioner, who is the son of the deceased proprietor, contended that once the proprietor of the assessee-firm had died, there was no occasion for issuing an SCN in the name of the deceased assessee-firm itself.

Decision:

The court ruled in favor of the assessee. It held that the undisputed fact was that the SCN and the determination of tax were made after the death of the proprietor of the assessee firm. It was a sine qua non (an essential condition) that the legal representative be issued an SCN, and only after seeking their response could the determination of tax liability take place. In view thereof, the determination made in the instant case without issuing notice to the legal representative could not be sustained, and the impugned order was to be set aside.

Key Takeaways:

Legal Personality Ceases with Death: A proprietary concern does not have a separate legal identity from its proprietor. Upon the death of the proprietor, the legal personality of the firm, for the purposes of proceedings, effectively ceases.
Mandatory Notice to Legal Representative: For any tax liability to be determined against a deceased proprietor’s business, it is a fundamental principle of natural justice and legal procedure that the show cause notice and subsequent proceedings must be initiated against and served upon the legal representative(s) of the deceased.
Section 93 CGST Act (or analogous provisions): While not explicitly detailed, Section 93 of the CGST Act (which deals with liability in case of transfer of business due to death, etc.) and principles of natural justice mandate that proceedings involving a deceased person must be carried out against their legal heirs or representatives.
Invalid SCN to Deceased Entity: An SCN issued in the name of a firm whose sole proprietor is deceased is legally invalid as it is directed at a non-existent legal entity for procedural purposes.
Consequences of Procedural Flaw: The failure to issue notice to the correct party (legal representative) is a jurisdictional and fundamental procedural flaw that renders the subsequent determination of tax liability unsustainable.
Setting Aside Order: Such a fundamental defect leads to the impugned order being set aside. The tax authorities would then need to initiate fresh proceedings correctly by issuing notice to the legal representative, if they wish to pursue the demand.

HIGH COURT OF ALLAHABAD

Samban Pharma

Deputy Commissioner

Arun Bhansali, CJ.
and Kshitij Shailendra, J.

WRIT TAX No. 2256 of 2025

MAY 15, 2025

Nitin Kumar, Kesarwani, Amit Biswas and Shubhanjali Guptafor the Petitioner. Ankur Agarwal, SC for the Respondent.

ORDER

1. This petition is directed against order dated 02.12.2023 passed under Section 73(9) of the Goods and Services Tax Act, 2017 (‘Act’) wherein a demand of Rs. 27,33,816.10 has been raised in the name of petitioner.

2. Mr. Siddharth Shukla, son of late Satish Kumar Shukla, has filed the present petition inter alia with the submissions that his father Satish Kumar Shukla was proprietor of petitioner firm and had died on 18.03.2023 and show cause notice dated 25.09.2023 was issued in the name of petitioner firm under Section 73 of the Act, which was uploaded on ‘Additional Notices and Orders’ Tab of the portal and thus, the show cause notice remained unanswered, which resulted in passing of the order dated 02.12.2023 raising demand against the petitioner firm.

3. Submission has been made that once the proprietor of the petitioner firm had already died, there was no occasion for issuing a show cause notice in the name of petitioner firm and the proceedings initiated by the department are void ab initio and, therefore, the order impugned deserves to be quashed and set aside.

4. Learned counsel for the respondents supported the order impugned with the aid of provisions of Section 93 of the Act. Submissions have been made that under the provisions of Section 93, recovery can be made from the legal representatives even after the determination has been made after the death of the proprietor of the firm.

5. We have considered the submissions made by counsel for the parties and have perused the material available on record.

6. Undisputed facts are that the show cause notice and determination of tax have been made after the death of the proprietor of the petitioner firm. Provisions of Section 93 of the Act, insofar as relevant, reads as under:

“93. Special provisions regarding liability to pay tax, interest or penalty in certain cases:

(1) Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016 (31 of 2016), where a person, liable to pay tax, interest or penalty under this Act, dies, then –

(a) if a business carried on by the person is continued after his death by his legal representative or any other person, such legal representative or other person, shall be liable to pay tax, interest or penalty due from such person under this Act; and

(b) if the business carried on by the person is discontinued, whether before or after his death, his legal representative shall be liable to pay, out of the estate of the deceased, to the extent to which the estate is capable of meeting the charge, the tax, interest or penalty due from such person under this Act,

whether such tax, interest or penalty has been determined before his death but has remained unpaid or is determined after his death.”

7. A perusal of the above provision would reveal that the same only deals with the liability to pay tax, interest or penalty in a case where the business is continued after the death, by the legal representative or where the business is discontinued, however, the provision does not deal with the fact as to whether the determination at all can take place against a deceased person and the said provision cannot and does not authorise the determination to be made against a dead person and recovery thereof from the legal representative.

8. Once the provision deals with the liability of a legal representative on account of death of the proprietor of the firm, it is sine qua non that the legal representative is issued a show cause notice and after seeking response from the legal representative, the determination should take place.

9. In view thereof, the determination made in the present case wherein the show cause notice was issued and the determination was made against the dead person without issuing notice to the legal representative, cannot be sustained.

10. Consequently, the writ petition is allowed. The order dated 02.12.2023 (Annexure-1 to the writ petition) is quashed and set aside. The respondents would be free to take appropriate proceedings in accordance with law.