Demand Order passed against deceased person is not valid

The Hon'ble Madras High Court in the case of Unnikrishnan R. v. Union of India [W.P No. 12464 of 2024 dated June 12, 2024], held that order passed against the dead person is invalid when the business of the deceased person is not being operated by the legal heirs of the deceased person. Also, it was held that, the Department is empowered to recover the tax amount under Section 93 of the Central Goods and Services Tax Act ("the CGST Act") if the business is being carried out by the legal heirs of the deceased person.

Facts:

Mr. Unnikrishnan R. ("the Petitioner"), filed a writ petition challenging order dated December 29, 2023 ("the Impugned Order") passed by the Revenue Department ("the Respondent") for the year 2017-2018. The Petitioner was the son of Mr. Radhakrishnan Pillai, the owner of 'M/s. Chothi Enterprises', who passed away on October 11, 2017. The Petitioner and his family as legal heirs did not continue the business. However, a Show Cause Notice ("the SCN") was issued on September 29, 2023, in the name of the deceased dealer. The Petitioner contended that the Impugned Order against a deceased person was invalid. The Respondent argued that they had not been properly notified of Mr. Pillai's death.

Issue:

Whether the Demand Order passed against deceased person is valid?

Held:

The Hon'ble Madras High Court in W.M.P. (MD) No. 11068 of 2024 held as under:

· Opined that, the SCN was legally invalid since it was directed at a deceased person. Also, the Petitioner being legal heir has not continued the business and therefore could not be liable for the tax demand. However, if the Petitioner continues the business, tax demand could be raised and recovered under Section 93 of the CGST Act.

· Held that, the Impugned Order is set aside, and directed the Respondent to issue common notice to the Petitioner representing the interest of theother legal heirs/legal representatives of the deceased dealer

Our Comments:

Circular No. 96/15/2019-GST dated March 28, 2019 provides clarification relating to transfer of ITC in case of death of sole proprietor interlalia stating that as per Rule 41(1) of the CGST Rules, a registered person shall file FORM GST ITC-02 electronically on the common portal with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason. In case of transfer of business on account of death of sole proprietor, the transferee / successor shall file FORM GST ITC-02 in respect of the registration which is required to be cancelled on account of death of the sole proprietor. FORM GST ITC-02 is required to be filed by the transferee/successor before filing the application for cancellation of such registration. Upon acceptance by the transferee / successor, the un-utilized input tax credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.

Relevant Provision:

Section 93 of the CGST Act:

(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.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED