GST Notice To Deceased Invalid, Legal Heirs Must Be Separately Notified: Calcutta High Court

The Calcutta High Court on 27 August held that GST authorities cannot issue a show cause notice or determine tax liability against a deceased person, and must instead issue the notice to the deceased's legal representatives in their own names.

Justice Smita Das De made the observation while quashing a show cause notice issued under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) against Late Haradhan Pan, who died on 20 May 2021, along with the consequential Order-in-Original and recovery notice. The Bench held:

“...The machinery remains Section 73, 74, which requires issuance of show cause notice to person liable. Therefore, correct machinery is to issue Show Cause Notice to legal heirs, in his own name describing him as legal heirs of deceased and to determine the liability. Department cannot issue Show Cause Notice to deceased and then direct the legal heirs to give a reply to same...”

The petitioner, Gita Rani Pan, wife of the deceased proprietor, submitted that the GST authorities issued a show cause notice dated 8 March 2022 under Section 74 of the CGST Act in the name of her deceased husband, despite his death in May 2021.

Following her husband's death, the petitioner obtained a fresh GST registration in her own name for the same trade, declaring the commencement of business from 21 May 2021. She subsequently applied for cancellation of the registration standing in the name of the deceased proprietor.

Gita Rani contended that proceedings initiated against a dead person were void ab initio and relied upon several judicial precedents, including the Supreme Court's decision in Shabina Abraham v. Collector of Central Excise and Customs.

The GST authorities opposed the petition, arguing that the petitioner had not intimated the Department about the proprietor's death within the prescribed time.

The Department relied on Section 93(1)(b) of the CGST Act, which makes a legal representative liable to pay tax, interest and penalty due from a deceased person out of the estate inherited by the legal representative.

It also relied on Section 29(3) of the CGST Act, which provides that cancellation of registration does not extinguish tax liabilities for any period preceding the date of cancellation. The Department argued that even where tax liability was determined after the death of the taxable person, it could be recovered from the legal heirs to the extent of the deceased's estate.

The Court, however, distinguished between the statutory liability of legal heirs and the procedure for determining that liability. It observed that Section 93(1)(b) makes a legal representative liable for tax, interest and penalty due from the deceased, subject to the extent of the estate inherited. However, the provision does not prescribe the machinery for determining such liability. It stated:

“It clearly envisages from the plain reading of the Section 93(1)(b) of the CGST Act that the liability of a legal representative on account of death of the proprietor, it is a condition precedent that the Show Cause Notice must be issued to the legal representative, after seeking his response, to determine tax…”

The Bench held that Sections 73 and 74 of the CGST Act provide the machinery for determining tax liability and require the authorities to issue a show cause notice to the person liable to pay tax. It noted that “determination of taxes cannot take place against a dead person.”

It further held that the Department cannot issue a show cause notice in the name of a deceased person and subsequently require the legal heirs to respond to it. Instead, it must issue a fresh notice to the legal heirs in their own names, describing them as legal representatives of the deceased.

Relying on the Supreme Court's ruling in Shabina Abraham, the Court reiterated that Section 93 does not provide the machinery for assessment of a deceased person and that the Department must issue notice to the legal representative.

The Bench quashed the show cause notice, the Order-in-Original and the recovery notice. It directed the GST authorities to issue a fresh show cause notice to the legal heirs within three weeks.

It further directed the authorities to grant the legal heirs an opportunity of personal hearing and pass a reasoned and speaking order, keeping in view that their liability under Section 93(1)(b) is limited to the extent to which the deceased's estate is capable of meeting the tax, interest and penalty liability.

Accordingly, the High Court disposed of the writ petition without examining the merits of the underlying tax demand.

For Petitioner: Advocates Himangshu Kumar Roy, Subhasis Podder, Sushant Bagaria, Shiwani Shaw, Sayantika Dutta and Animitra Roy appeared

For CGST: Senior Advocate Vipul Kundolia, along with Advocates Ekta Sinha, Anindya Kanan, Dhirodatto Chaudhuri and Anukriti Agarwal, while Advocates Uday Sankar Bhattacharya and Tapan Bhanja also appeared

For the Union of India: Advocate Kushi Prasun Chatterjee