2025 (5) TMI 590 - HC - Customs

Penalty imposed on a deceased assessee survives after his death - fiscal enactment where the Statute must contain a specific and enabling provision to assess and recover tax/duty - recovery of penalty from the legal representatives of the deceased assessee - HELD THAT - Section 142 provides for the recovery of sums due to the Government by a person. The term person is not defined under the Act. However and on an application of first principles since an assessment of duty and levy of penalty can be with respect to a person alone the recovery contemplated under Section 142 is also expected to be from the same person and no other unless the concerned enactment provides for the continuance of the proceedings for assessment/recovery in the hands of any other person. Even for recovery to be continued/taken the concerned Department must specifically be enabled by way of a mechanism. The Supreme Court in the Judgement in Shabina Abraham and others V Collector and Central Excise and Others 2015 (7) TMI 1036 - SUPREME COURT was concerned with the recovery of arrears of Central Excise in the hands of the appellant who was the legal representative of an assessee who had died - The argument of the revenue in that case similar to that advanced before us was that the Central Excise and Salt Act provided for recovery of amounts due to the Department from an assessee by various methods including attachment and sale of excisable goods belonging to the assessee. The Department relied on the provisions of Section 11 contending that that provision would enable the revenue to continue with assessment proceedings and should such proceedings be concluded adverse to the assessee represented by the legal representative then the demand as raised could be recovered from the legal representatives of the deceased assessee. In the present case the proceedings have been concluded in the hands of the assessee. To that extent the facts are a little different. However the difference is no so much so as to make a difference to the legal position as there is no provision in the Customs Act for continuing proceedings even for recovery in the hands of the legal heirs. To that extent the ratio of the judgment supra that the concerned enactment must contain suitable machinery to enable certain actions to be taken would be equally applicable in this case as well. The scheme of the Act thus contemplates recovery only as set out under Section 142 or Section 142A read with the Rules. Pre-2011 the Department could embark on recovery in the manner as set out under the Rules in the case of those Assessee s where Certificates had been drawn up and the procedure as contemplated under the Rules. Post 2011 the demands raised after the date of insertion of Section 142A will be a charge on the property of an assessee. However Sections 142 142A and the Rules are silent as to the impact of the recovery provisions in the case of demise of an assessee and Legislature has consciously not provided for such a situation - The assessments in the present case have been framed as early as on 24.10.2002 when there was no enabling provision under the Customs Act stipulating that the demands under those orders could be enforced as a first charge. In such circumstances and on the facts of the present case Section 142A of the Act also cannot come to the aid of the Department. Conclusion - The appeals abate. In the absence of a mechanism under the Act prior to 2011 for enforcement of the demand of duty penalty interest or any other sum payable by an assessee or a person under Customs Act 1962 the demands raised under orders dated 24.10.2002 lapse. The appeals abate.

Summary

The core legal questions considered by the Court were: (i) whether the demand of penalty imposed under the Customs Act, 1962 on a deceased assessee survives after his death; (ii) whether the appeal filed by the deceased assessee challenging the penalty order abates upon his demise; and (iii) whether the Customs Department can proceed to recover the penalty from the legal representatives of the deceased assessee.

Regarding the survival of penalty demand post demise, the Court examined the statutory framework of the Customs Act, 1962, particularly the provisions relating to imposition, assessment, and recovery of penalties. It noted that penalty under Section 112(a) is personal in nature, premised on the intention of the individual to commit an illegal act. The Court emphasized that the Customs Act does not contain any specific provision enabling recovery of penalty or continuation of assessment or recovery proceedings against the legal representatives of a deceased assessee.

The Court analyzed precedents from criminal and fiscal law contexts. Decisions cited by the appellants, including those from criminal law, established that penalty is personal and cannot be recovered from the estate or legal heirs. However, the Court distinguished those cases as primarily criminal in nature and held that fiscal statutes require explicit enabling provisions to continue proceedings against legal heirs. The Court relied heavily on a Supreme Court judgment concerning the Central Excise and Salt Act, which held that in the absence of specific machinery provisions, assessment or recovery proceedings cannot continue against legal representatives of a deceased assessee. This principle was reinforced by subsequent High Court decisions applying the same rationale.

On the question of abatement of appeal, the Court observed that the Customs Act is silent on the effect of the demise of an assessee on pending appeals. Unlike the Income Tax Act, 1961, which contains express provisions for substitution of legal representatives, the Customs Act contains no such mechanism. The Court referred to general principles under the Indian Succession Act and the General Clauses Act but found no legislative mandate to allow continuation of appeal by legal heirs. It further noted that the right of appeal is statutory and must be expressly conferred; mere pecuniary interest of heirs does not suffice to continue an appeal.

Regarding recovery, the Court scrutinized Section 142 of the Customs Act and the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995. It found that these provisions envisage recovery only from the person on whom the order is passed and do not extend to legal representatives of a deceased person. The Court noted that neither the Act nor the Rules define 'person' or 'assessee' to include legal heirs. The Court further examined Section 142A (inserted in 2011) which creates a first charge on the property of the assessee for dues under the Act, but held that since the penalty orders in question were passed in 2002, prior to this amendment, Section 142A could not be applied retrospectively to aid recovery from legal heirs.

The Court also noted that no material was produced to show that any attachment or recovery proceedings under the Rules had been initiated against the legal heirs. It rejected the Revenue's contention that appeals do not abate automatically on death and that recovery could continue, holding that without explicit statutory provisions, such recovery is impermissible.

In addressing competing arguments, the Court acknowledged the appellant's reliance on precedents affirming the personal nature of penalty and the non-survival of penalty liability post demise. It also considered the Revenue's submissions that recovery is a separate stage and that the absence of abatement provisions implies continuation of appeals and recovery. The Court rejected the latter, emphasizing the necessity of explicit legislative machinery to continue proceedings against legal representatives in fiscal statutes.

Ultimately, the Court concluded that the appeals filed by the deceased assessee abate upon his death, and the penalty demands raised under the orders-in-original dated 24.10.2002 stand extinguished. The legal heirs cannot be held liable for the penalty, and the Department has no statutory authority to recover the penalty from them. The Court dismissed the appeals as abated and closed all connected petitions without costs.

Significant holdings include the following verbatim excerpt from the Supreme Court judgment relied upon: "We do not find any provision in the Act which foists any such liability in the case of intestate succession. In other words, there is no provision which empowers the authorities to recover due from a deceased assessee by proceeding against his legal heirs. The way section 11 and 11A are worded, it is amply clear, the legislature has consciously kept away the legal heirs from answering to liabilities under the Act."

The Court established the core principle that in the absence of explicit statutory provisions, penalty liability under the Customs Act does not survive the death of the assessee, and appeals filed by the deceased assessee abate. Recovery of penalty from legal representatives is not permissible unless the statute provides a clear mechanism enabling such recovery. This principle underscores the necessity of legislative clarity in fiscal statutes regarding the treatment of liabilities and appeals upon the death of an assessee.

The final determinations were: (i) the penalty demand does not survive the demise of the assessee; (ii) the appeal filed by the deceased assessee abates on his death; and (iii) the Customs Department cannot recover the penalty from the legal heirs in the absence of statutory provisions enabling such recovery. Consequently, the appeals were dismissed as abated and the penalty demands extinguished.