In the present Article, I am going to discuss the law and provisions of GST applied in case of death of sole proprietor. There are number of events when and where the transfer of business takes place few of the reason are mentioned herein below:

a) sale of the business,

b) merger,

c) de-merger,

d) insolvency,

e) Death of sole proprietor,

f) Dissolution of firm and company

g) Liquidation of company

h) Partition of HUF or AOP

i) Termination of TRUST or Society etc.

But in the present Article we will discuss the transfer of business occurred due to death of sole proprietor. In case of death of proprietor two situations arises i.e either the business is transferred as going concern to legal heir or business is discontinued. In this article, I will try to explain both the situations.

NOTIFICATION OR CIRCULAR ISSUED:

Circular No.69/43/2018-Gst Dated 26-10-2018 

Circular no. 88/07/2019-Gst,Dated 01-02-2019

Circular no. 96/15/2019-Gst,Dated 28.03.2019

GST Law And Provisions Applied In Case Of Death Of Sole Proprietor

That in the case of death of proprietor of business, there are two following situation arises:

1. Discontinuing of business.

2. Continuing of business by legal representative of decease proprietor.

Now start to discuss in detail the above two situations:

1. Discontinuing Of Business:

In this situation if the legal heir/legal representative / successor of deceased person do not intend to continue the business, even then he have some liabilities under GST law which he have to fulfill or complied under GST law which discuss herein below:

Filing of Returns:

That it is the first liability of legal heir/legal representative / successor of deceased person to file all the pending returns due after the death of proprietor and discharge the tax liability for the tax period during which the proprietor is died. It may be GSTR-1, GSTR-3B, GSTR 4, GSTR 4A, GSTR-9, GSTR-9A, GSTR-9C etc. Otherwise it may attract late fee, interest, penalty and prosecution against the legal heir/legal representative / successor of deceased person.

Cancellation of Registration & Payment of Tax on Available Stock:

Section 29(1)says that the proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration as per the law prescribed under the CGST Act, 2017.

So, it is clear under law that if the proper officer did not take any action in his own then the legal heir of decease proprietor shall make an application through online portal for cancellation of registration by filing FORM GST REG-16.

Further, section 29(5) deals with the provision that every registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed:

Provided that in case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under section 15, whichever is higher.

So, here the law bounds to the legal heir/legal representative or successor of deceased person to pay the liability outstanding against the deceased person in respect of input held in stock, inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery by debiting the amount in electronic credit ledger or electronic cash ledger.

Liabilities Outstanding At the Time of Death or Before Death of Proprietor:

Section 93(1)(b) states that 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.

So, here the law bounds to the legal heir/legal representative or successor of deceased person to discharge the liability of tax, interest or penalty out of the estate of deceased person, whatever has been determined before his death but has remained unpaid or is determined after his death.

2. CONTINUING OF BUSINESS BY LEGAL REPRESENTATIVE OF DECEASE PROPRIETOR:

NEW REGISTRATION BY TRANSFREE OR SUCCESSOR:

Section 22(3) states that “Where a business carried on by a taxable person registered under this Act is transferred, whether on account of succession or otherwise, to another person as a going concern, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession.”

So, as per section 22(3) the legal heir/legal representative or successor of deceased person shall have to apply for new registration at common portal of GST by filing Form GST REG-1. The other reason for obtaining new registration is that the GST registration is PAN based registration.

TRANSFER OF INPUT TAX CREDIT:

Section 18(3) of CGST states“Where there is a change in the constitution of a registered person on account of the sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.”

So, here the law required to the transfree or successor of deceased proprietor to transfer the input tax credit which remain unutilised in electronic credit ledger of deceased person to the electronic credit ledger of successor or transfree. i.e legal heir or legal representative.

Further we, discuss the manner of transfer of input tax credit held in electronic credit ledger of deceased proprietor to the electronic credit ledger of transfree or successor i.e legal heir or legal representative.

MANNER OF TRANSFER OF INPUT TAX CREDIT FROM ELECTRONIC LEDGER:

Rule 41 of CGST Rules prescribed the manner of transfer of input tax credit from one electronic credit ledger to another electronic credit ledger which is described in simple language as follows:

1. A registered person shall, in the event of a sale, merger, de-mergeramalgamation, lease or transfer or change in the ownership of the business for any reason, file FORM GST ITC-02electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee.

2. The transferor shall also submit a copy of a certificate issued by a practising chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.

3. The transferee shall accept the details so furnished by the transferor at common portal in FORM GST ITC-02 and that unutilised creditshall be credited to his electronic credit ledger of transfree.

4. The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account.

But here it is also noteworthy that this procedure is to be followed if there is any unutilised credit is available in the electronic credit ledger of deceased person. If there is no ITC available in the electronic credit ledger then no need to file form GST ITC-02 by the transferor or transfree.

Cancellation of GST Registration:

Section 29(1)says that the proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration as per the law prescribed under the CGST Act, 2017.

So, it is clear under law that if the proper officer did not take any action in his own then the legal heir of decease proprietor shall make an application through online portal for cancellation of registration by filing FORM GST REG-16.

The other reason of cancellation is that the law also required to the transfree or successor to obtain new registration as the GST is PAN based registration and the transfree or successor have to obtain registration under his own PAN.

Now, it is also important to note that In case of closure of the business, tax payment will be required on the stock as per section 29(5) at the time of cancellation as discussed above in first situation and in second situation that what we are discussing here the inputs held in stock or inputs contained in semi-finished or finished goods held in stock and of capital goods held in stock on the date of death of proprietor is transferred to the legal heir by filing FORM GST ITC -02 and there will be no stock at the point of cancellation, hence there will be no need of payment of tax on the same.

Liabilities Outstanding At The Time Of Succession Or Transfer:

In the second situation two sections of CGST Act, 2017 deals with transfer of liability, outstanding in the name of transferor or deceased proprietor, where the business is transferred to the legal heir/legal representative of deceased person and the same is continued by the legal heir or legal representative. i.e section 85 and section 93 of CGST Act, 2017.

Section 85(1) of the CGST Act states that,  Where a taxable person, liable to pay tax under this Act, transfers his business in whole or in part, by sale, gift, lease, leave and license, hire or in any other manner whatsoever, the taxable person and the person to whom the business is so transferred shall, jointly and severally, be liable wholly or to the extent of such transfer, to pay the tax, interest or any penalty due from the taxable person upto the time of such transfer, whether such tax, interest or penalty has been determined before such transfer, but has remained unpaid or is determined thereafter.

Section 93(1)(a) of CGST Act, 2017 states that  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

So, here we have to understand that in the first situation Section 93(1)(b) deals with and in the second situation section 85(1) and section 93(1)(b) plays important role.

DISCLAIMER:

This article is based on the relevant provisions and as per the information existing at the time of preparation. In no event I shall be liable for any direct and indirect result from this article. This is only a knowledge sharing initiative provided solely for information. This article is not a professional advice or recommendation.

Author Bio

Qualification: CA in Practice
Company: PULKIT GUPTA & CO.
Location: JALANDHAR, Punjab, IN
Member Since: 12 May 2020 | Total Posts: 1

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