Case Law Details
Atishay Traders Vs State of U.P. and Another (Allahabad High Court)
Allahabad HC held that the GST Tax 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
Allahabad: The Allahabad High Court has set aside a Goods and Services Tax (GST) demand of ₹50,000 raised against a proprietorship firm in the name of its deceased proprietor. The court held that the entire proceedings, initiated by issuing a show-cause notice and culminating in a demand order against a person who had already passed away, were fundamentally flawed and void from the outset.
The case, titled Atishay Traders Vs State of U.P. and Another, involved a demand order dated March 19, 2024, issued under Sections 125 read with 127 of the GST Act, 2017. The demand was raised in the name of Harish Chandra Jain, the proprietor of M/s. Atishay Traders.
However, the court was informed that Harish Chandra Jain had died on February 3, 2019. Following his death, the GST registration of his proprietorship firm, M/s. Atishay Traders, which was in his name, was cancelled with effect from January 31, 2019, through an order dated September 21, 2019.
Despite these facts, a show-cause notice dated October 8, 2023, was subsequently issued in the name of the deceased Harish Chandra Jain under Section 125 read with Section 127 of the GST Act. According to Mr. Atishay Jain, the legal heir of the deceased, these notices were uploaded on the GST portal. However, as the GST registration of the firm had already been cancelled following the proprietor’s death, there was no occasion for the legal heir to access the portal and become aware of the show-cause notice. Consequently, the notice remained unanswered, leading to the issuance of the impugned order dated March 19, 2024, which raised the demand against the deceased individual.
Appearing for the petitioner, Mr. Atishay Jain argued that the department was well aware of the fact that Harish Chandra Jain, the proprietor, had died and that the firm’s registration had been cancelled. Therefore, there was no justification for issuing a show-cause notice in the name of a deceased person. He contended that conducting proceedings and raising a demand against a dead person rendered the entire process void ab initio, and as such, the demand order should be quashed.
The counsel for the respondents, the state authorities, sought to defend the impugned order by referencing Section 93 of the GST Act. They submitted that under the provisions of Section 93, recovery could be made from the legal representatives even if the determination of tax, interest, or penalty was made after the death of the proprietor of the firm.
The High Court, after considering the arguments from both sides and reviewing the available material, acknowledged the undisputed facts that the show-cause notice, subsequent reminders (if any), and the final determination of the tax liability were all made after the death of the proprietor. The court then proceeded to examine the relevant provisions of Section 93 of the GST Act.
Section 93 of the Act, which deals with special provisions regarding liability to pay tax, interest, or penalty in certain cases, states in sub-section (1) that where a person liable to pay tax, interest, or penalty dies, if the business is continued by a legal representative or another person, that person shall be liable. If the business is discontinued, whether before or after death, the legal representative shall be liable to pay out of the deceased’s estate, to the extent of the estate’s capacity, the dues whether determined before death but unpaid or determined after death.
The High Court’s interpretation of Section 93 was critical to its decision. The court observed that while Section 93 outlines the liability of a legal representative to pay outstanding dues or dues determined after the death of the proprietor, it does not address the fundamental question of whether a determination of tax, interest, or penalty can validly take place against a deceased person in the first instance. The court emphasized that Section 93 does not authorize proceedings for determination to be conducted against a dead person and then subsequently recover the dues from the legal representative based on such a determination.
The court reasoned that once the law (specifically Section 93) contemplates the liability of a legal representative upon the death of the proprietor, it is a necessary prerequisite (sine qua non) that the legal representative must be issued a show-cause notice. Only after providing the legal representative with an opportunity to respond can the determination of tax, interest, or penalty be validly made.
The High Court concluded that in the present case, the determination was made against a dead person without issuing any notice to the legal representative. Such a process, the court held, could not be sustained in the eyes of the law.
Although the judgment does not explicitly refer to specific judicial precedents by name, its underlying principle is firmly rooted in established legal norms regarding the necessity of proper notice and the inability to pursue legal proceedings against a deceased individual without bringing their legal representatives onto the record. This principle is a fundamental aspect of natural justice, ensuring that affected parties have an opportunity to be heard. Courts across various jurisdictions and in different legal contexts have consistently held that proceedings initiated or continued against a dead person without substituting their legal heirs are a nullity. The Allahabad High Court’s decision in this case aligns with this universally accepted legal principle, emphasizing that a valid determination of liability can only be made after following due process, which in the case of a deceased person, involves engaging with their legal representatives.
Consequently, the Allahabad High Court allowed the writ petition, quashing and setting aside the order dated March 19, 2024. The court, however, clarified that its decision would not prevent the respondents from initiating appropriate proceedings in accordance with the law. This leaves open the possibility for the tax authorities to issue a proper show-cause notice to the legal heir of the deceased proprietor and proceed with the determination of liability as per the provisions of the GST Act, after providing an opportunity for response and hearing. The ruling serves as a reminder of the critical importance of identifying the correct legal entity against whom proceedings are to be initiated, particularly in cases involving the death of a proprietor.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. This petition is directed against order dated 19.03.2024 passed under Section 125 read with Section 127 of the Goods and Services Tax Act, 2017 (for short ‘the Act’) wherein a demand of Rs. 50,000.00 has been raised in the name of Harish Chandra Jain.
2. Mr. Atishay Jain, legal heir of deceased Harish Chandra Jain, who was proprietor of the petitioner’s firm, has filed the petition inter alia with the submissions that Harish Chandra Jain had died on 03.02.2019 and on account of his death, the GST registration of the proprietorship firm M/s. Atishay Traders, which was in the name of deceased Harish Chandra Jain, was cancelled with effect from 31.01.2019 by order dated 21.09.2019. Where after a show cause notice dated 08.10.2023 was issued in the name of deceased Harish Chandra Jain under Section 125 read with Section 127 of the Act, however, as the same were uploaded on the portal and the GST registration had already been cancelled, there was no occasion for the petitioner to have accessed the said portal, the show cause notice remained unanswered which resulted in passing of the order dated 19.03.2024 raising demand against the deceased.
3. Submissions have been made that once the Department was well aware of the fact that Harish Chandra Jain, proprietor of the firm has already died and the registration of the firm has already been cancelled, there was no occasion for issuing a show cause notice in the name of the deceased and as the proceedings have been conducted in the name of the deceased Harish Chandra Jain, the same 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, the 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, reminders and determination of tax have been made after the death of the proprietor of the 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 19.03.2024 (Annexure-3 to the writ petition) is quashed and set aside. The respondents would be free to take appropriate proceedings in accordance with law.
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