HC: GST Department Can Initiate Fresh Proceedings Against Legal Heirs Even If Taxpayer Died Before Notice:

The Madurai Bench of the Madras High Court has held that GST authorities can initiate fresh assessment proceedings against the legal heirs of a deceased taxpayer even if no show cause notice or assessment proceedings were initiated during the taxpayer's lifetime. However, where the business has been discontinued, the liability of the legal heir is restricted to the extent of the estate inherited from the deceased.

The petitioner, wife of the deceased proprietor of M/s. Vasu Chemicals challenged an order passed under Section 74 of the CGST Act for FY 2018-19. Her husband, who was engaged in the business of industrial soaps and polishes, had died on 5 March 2019. Following his death, the proprietary business was discontinued, and the GST registration was cancelled with effect from 31 December 2019.

Several years later, the department issued communications, including Form DRC-01A and a show cause notice, alleging non-filing of GST returns corresponding to certain e-way bills for FY 2018-19. Despite the petitioner's replies stating that she neither continued the business nor had knowledge of its affairs, the department confirmed tax, interest and penalty amounting to over Rs.3.42 lakh.

Before the High Court, the petitioner argued that Section 93 of the CGST Act, dealing with the liability of legal heirs, should be read harmoniously with Section 74. According to her, fresh proceedings cannot be initiated against legal heirs where no proceedings had commenced during the lifetime of the deceased taxable person. She also relied on decisions under the Income-tax Act and contended that only the "person chargeable with tax" could be subjected to assessment proceedings.

Rejecting these submissions, the Court held that Section 93 specifically authorises recovery of tax, interest and penalty from legal heirs even where such liability is determined after the death of the taxable person. The Court observed that the expression "determined after his death" necessarily includes the entire adjudicatory process, including issuance of notices and assessment proceedings under Sections 73, 74 or 74A of the CGST Act.

The Court further clarified that the phrase "person chargeable with tax" under Section 74 is wider than the expression "taxable person" defined under the Act. It includes every person on whom the statute imposes liability, including legal heirs in cases covered by Section 93.

Distinguishing the Income-tax Act judgments cited by the petitioner, the Court held that the CGST Act contains an express statutory mechanism dealing with liability after the death of a taxable person, making those precedents inapplicable.

Answering the legal issue, the Court held that even where the business has been discontinued and no show cause notice or assessment proceedings had been initiated during the lifetime of the deceased taxable person, fresh proceedings may still be initiated against the legal heir under Sections 73, 74 or 74A by virtue of Section 93 of the CGST Act. However, in cases of discontinued businesses, recovery from the legal heir is limited to the value of the estate inherited by him or her.

Thus, the writ petition was dismissed.

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