The Goods and Services Tax Appellate Tribunal (GSTAT), Thiruvananthapuram Bench, has set aside GST proceedings against a deceased proprietor after finding that the department neither issued notice to the legal heir nor examined the availability of the deceased taxpayer’s estate for recovery under Section 93 of the CGST/KGST Act.
The bench of Subramanya Rayaprol (Vice-President) and Ramamoorthi Sriram (Technical Member) has observed that the taxpayer was entitled to Input Tax Credit (ITC) for the financial year 2017-18 in view of the retrospectively inserted Section 16(5), since the relevant GST returns had been filed before the extended statutory cut-off of November 30, 2021.
The case originated from an assessment notice in Form ASMT-10 dated March 5, 2020. The department alleged that the GSTR-3B return for March 2018 had been filed on June 16, 2019, instead of the due date of April 23, 2019.
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The department proposed disallowance of ITC amounting to ₹1,72,430 under Section 16(4), along with interest of ₹2,18,198. The taxpayer could not respond to the proceedings, initially because of the COVID-19 pandemic and lockdown and subsequently because of continuing illness. The proceedings later culminated in DRC-01A and DRC-01 notices.
The DRC-01 dated July 15, 2021 revised the demand to ₹1,72,430 towards tax, ₹1,00,340 as interest, ₹20,000 as penalty and an additional interest demand of ₹1,87,350 for delayed filing of GSTR-3B returns for November 2017 to March 2018. An ex parte order in DRC-07 was subsequently issued on February 15, 2022, following which the taxpayer pursued an appeal before the first appellate authority.
The proprietor subsequently died on September 5, 2024. The Tribunal recorded that the death certificate was produced before it and that the present appeal was filed by the deceased taxpayer’s son, claiming to be the legal heir, on March 26, 2026.
The GST registration had already been cancelled suo motu with effect from June 6, 2023. The Tribunal also noted that there was no continuation of business after the relevant period. The chronology recorded by the Tribunal showed that the assessment notice was issued in March 2020, the adjudication order was passed in February 2022, the first appellate order followed in December 2022, the GST registration was cancelled in June 2023, and the taxpayer died in September 2024.
The Tribunal framed two principal questions.
First, it examined whether the department had properly followed the procedure under Section 93(1)(b) of the CGST/KGST Act after the death of the proprietor, particularly where the business had been discontinued and the department intended to pursue liability against the legal representative.
Second, it considered whether the deceased taxpayer remained entitled to the disputed ITC in light of the retrospective insertion of Section 16(5) by the Finance (No. 2) Act, 2024.
The Tribunal’s decision on both questions ultimately went in favour of the legal heir.
The Tribunal examined Section 93 of the CGST/KGST Act, which specifically deals with liability to pay tax, interest or penalty after the death of a taxpayer.
Where the business is continued after death, Section 93(1)(a) makes the legal representative or other person continuing the business liable. Where the business is discontinued, Section 93(1)(b) provides that the legal representative is liable to pay the dues out of the estate of the deceased, and only to the extent that the estate is capable of meeting the liability.
The Tribunal found that the proprietorship had come to an end and the GST registration had been cancelled. It further observed that there had been no subsequent business activity in the name of the deceased proprietor.
Significantly, however, the department had not undertaken any exercise to ascertain whether an estate of the deceased existed against which the statutory liability could be enforced. Nor had any notice been issued to the legal heir for recovery of the alleged dues.
The GSTAT emphasised that Section 93 does not permit the department to mechanically continue proceedings against a dead taxpayer. While the provision permits tax, interest or penalty to be recovered from a legal representative in appropriate circumstances, the statutory mechanism must be followed.
The Tribunal observed that recovery in the case of a discontinued business is confined to the estate inherited from the deceased. Since the department had neither brought any inherited estate on record nor initiated the necessary proceedings against the legal heir under Section 93, the statutory foundation for recovery was absent.
Consequently, the Tribunal held that the first appellate order was unsustainable and that the proceedings were liable to be set aside.
The GSTAT supported its conclusion by referring to a series of recent High Court decisions concerning GST proceedings against deceased proprietors.
Among the decisions considered was SSS Agro Foods v. Assistant Commissioner ST, Kakinada, where the Andhra Pradesh High Court held that assessment proceedings cannot validly continue against a deceased proprietor and that proceedings, where necessary, must be taken against the appropriate legal representative after notice and hearing.
The Tribunal also referred to the Rajasthan High Court decision in Chotu Devi, Ajmer v. Union of India, observing that although a legal representative may be liable for the deceased proprietor’s tax, interest and penalty from the deceased’s estate, procedural safeguards such as notice and an opportunity of hearing remain necessary.
Similarly, in M/s J.S. Enterprisers v. Superintendent Central GST and Cx Division, Cuttack-I, the Orissa High Court held that proceedings under Section 73 cannot be initiated or concluded against a deceased sole proprietor without issuing notice to the legal representative.
The Tribunal further considered decisions of the Karnataka, Madras, Jharkhand and Allahabad High Courts, all of which reinforced the distinction between liability of a deceased taxpayer’s estate and the impermissibility of adjudicating against a deceased person without following the statutory procedure applicable to legal representatives.
The Tribunal also referred to decisions including P.B. Sethi Plastics, Rajvanti Devi, Sambul Shahid and Shubhangi Gupta, where proceedings against deceased proprietors were held unsustainable when notices and adjudication were not properly directed to the legal representatives.
Apart from the procedural defect concerning the deceased proprietor, the Tribunal independently examined the substantive ITC dispute.
The original demand was based on Section 16(4), since the GST returns were filed beyond the then-applicable time limit. However, the legal position changed with the insertion of Section 16(5) through the Finance (No. 2) Act, 2024.
Section 16(5), given retrospective effect from July 1, 2017, provides that notwithstanding Section 16(4), a registered person can claim ITC in respect of invoices or debit notes pertaining to financial years 2017-18, 2018-19, 2019-20 and 2020-21 where the relevant return under Section 39 was filed up to November 30, 2021.
The Tribunal found that the relevant returns had been filed much before the extended statutory deadline.
According to the order, returns for the relevant earlier periods had been filed on July 31, 2018, while the March 2018 return was filed on June 16, 2019. Both dates fell well before November 30, 2021, the cut-off prescribed under the retrospectively inserted Section 16(5).
The Tribunal therefore held that the deceased taxpayer was eligible for the ITC claimed in the GST returns for the relevant 2017-18 period.
It specifically concluded that the retrospective statutory relaxation under Section 16(5) applied irrespective of the taxpayer subsequently having died. On merits, therefore, the ITC disallowance could not survive.
The departmental representative had distinguished the ITC issue from the separate interest liability arising from delayed filing of monthly returns.
According to the department, the interest of ₹1,87,350 under Section 50(1) related to delay in payment of admitted cash tax liability and was independent of the eligibility of ITC. The department therefore argued that Section 16(5) would not automatically extinguish this separate interest component.
However, the Tribunal ultimately set aside the impugned appellate order and allowed the appeals with consequential relief, after finding both the procedural defect under Section 93 and the taxpayer’s entitlement to ITC under Section 16(5).
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