2025 (6) TMI 1064 - HC - GST

Challenge to order passed u/s 73(9) of the Goods and Services Tax Act 2017 - Submission has been made that once the proprietor of the petitioner firm had already died there was no occasion for issuing a SCN in the name of petitioner firm and the proceedings initiated by the department are void ab initio - HELD THAT - A perusal of Section 93 of the Goods and Services Tax Act 2017 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. 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. 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 - Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether a show cause notice and subsequent determination of tax liability can be validly issued against a deceased proprietor of a firm under the Goods and Services Tax Act, 2017 ('Act').
• The scope and applicability of Section 93 of the Act concerning the liability of legal representatives for tax dues following the death of a taxpayer.
• Whether the tax authorities are required to issue a show cause notice and conduct proceedings against the legal representative of a deceased taxpayer before making a determination and raising a demand.
• The validity of the order raising a tax demand against the petitioner firm after the death of its proprietor without issuing notice to the legal representative.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of issuing show cause notice and determination against a deceased person under the GST Act

Relevant legal framework and precedents: The case primarily revolves around Section 73(9) of the GST Act, which empowers the tax authorities to issue show cause notices and determine tax demand. Additionally, Section 93 of the Act provides special provisions regarding liability to pay tax, interest, or penalty in cases where the liable person dies.

Court's interpretation and reasoning: The Court examined Section 93(1), which states that if a person liable to pay tax dies, the legal representative is liable to pay the outstanding tax, interest, or penalty, whether determined before or after death. The Court observed that this provision addresses the liability of the legal representative but does not authorize the tax authorities to initiate or continue proceedings against the deceased person themselves.

Key evidence and findings: It was undisputed that the show cause notice and determination order were issued after the death of the proprietor, and no notice was issued to the legal representative. The petitioner's counsel argued that the proceedings against the deceased were void ab initio.

Application of law to facts: The Court held that since the proprietor was deceased at the time of issuance of the show cause notice, the notice should have been issued to the legal representative, not the deceased. The GST Act does not empower the authorities to proceed against a dead person. Therefore, the proceedings initiated against the deceased proprietor were invalid.

Treatment of competing arguments: The respondents relied on Section 93 to justify recovery from legal representatives post-death. However, the Court clarified that Section 93 only deals with liability and recovery, not with the initiation of proceedings or determination against a deceased person. The Court rejected the argument that the proceedings could validly continue against the deceased without involving the legal representative.

Conclusions: The Court concluded that the show cause notice and determination issued against the deceased proprietor were without jurisdiction and hence void. The authorities must issue notice and conduct proceedings against the legal representative to validly determine and recover tax dues.

Issue 2: Requirement of issuing show cause notice to legal representative before determination and recovery

Relevant legal framework and precedents: Section 93(1) of the GST Act imposes liability on legal representatives for tax dues of deceased persons. However, procedural fairness and principles of natural justice require that the legal representative be given an opportunity to respond before a demand is finalized.

Court's interpretation and reasoning: The Court emphasized that since the liability shifts to the legal representative upon death of the taxpayer, it is a sine qua non that the legal representative must be issued a show cause notice and given an opportunity to respond before any determination is made.

Key evidence and findings: The absence of any notice or opportunity to the legal representative was a critical defect in the impugned proceedings. The show cause notice was issued only in the name of the deceased proprietor, and the legal representative was not heard.

Application of law to facts: The Court applied the principle that no determination can be made against a person without giving them notice and opportunity of being heard. Since the legal representative is liable post-death, they must be treated as the proper party in proceedings.

Treatment of competing arguments: The respondents did not dispute the absence of notice to the legal representative but argued that recovery can be made from them under Section 93. The Court held that recovery can only follow valid determination after due process against the legal representative.

Conclusions: The Court held that failure to issue show cause notice to the legal representative and to afford them opportunity to respond vitiated the proceedings. The determination and demand raised without such notice cannot be sustained.

Issue 3: Validity of the impugned order raising demand after death of proprietor

Relevant legal framework and precedents: Section 73(9) of the GST Act empowers issuance of demand orders after show cause notices. However, the procedural requirements must be complied with.

Court's interpretation and reasoning: The Court found that since the show cause notice was invalidly issued to the deceased and not to the legal representative, the subsequent order dated 02.12.2023 raising demand was also invalid.

Key evidence and findings: The order dated 02.12.2023 was passed without any response or participation from the legal representative, who alone is liable post-death.

Application of law to facts: The Court quashed and set aside the impugned order on the ground that the foundational show cause notice was invalid and no proper proceedings were conducted.

Treatment of competing arguments: The respondents were permitted to initiate fresh proceedings in accordance with law against the legal representative.

Conclusions: The impugned order raising demand against the deceased proprietor was quashed and set aside.

3. SIGNIFICANT HOLDINGS

"The said provision cannot and does not authorise the determination to be made against a dead person and recovery thereof from the legal representative."

"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."

"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."

The Court established the principle that tax proceedings under the GST Act cannot be initiated or continued against a deceased person. Instead, the proper party is the legal representative, who must be issued a show cause notice and given an opportunity to respond before any determination or