2025 (4) TMI 1517 - HC - GST

Initiation of proceedings and issuenace of SCN against a deceased person - Liability of legal representative u/s 93 - HELD THAT - It is clear from the facts that the show cause notice and order both were uploaded on the portal and the same was accordingly not known to the legal heirs of the proprietor of the firm. The wife of Mr. Surendra Kumar has also expired and the writ petitioner who is the son of Mr. Surendra Kumar has filed this writ petition challenging the show cause notice and order on the ground that the same were passed against a person who was deceased. Furthermore since information had been provided to the authorities with regard to death of the deceased person the very initiation of the show cause notice was bad in law. It is inherent that proceedings cannot be initiated against a person who is deceased. Thus proceedings cannot be initiated against the legal heirs of the deceased or against the estate of the deceased. However it was open to the authorities to proceed in proper manner against the legal representative/heirs of the deceased proprietor and having failed to do so the entire proceedings initiated from the stage of show cause notice is bad in law. Conclusion - The proceedings cannot be initiated against a person who is deceased. Also proceedings cannot be initiated against the legal heirs of the deceased or against the estate of the deceased. Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

- Whether proceedings under Section 74 of the Uttar Pradesh Goods and Services Tax Act, 2017 (the Act) can be initiated and show cause notices issued against a deceased person.

- Whether the tax authorities complied with the procedural requirements under Section 93 of the Act when initiating proceedings against the deceased proprietor of the firm.

- Whether the issuance of a show cause notice and passing of an ex parte order against a deceased person without involving the legal heirs or representatives is valid and sustainable in law.

- The scope and application of Section 93 of the Act regarding liability of legal representatives for tax dues of a deceased person.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of initiating proceedings against a deceased person under Section 74 of the Act

Relevant legal framework and precedents: Section 74 of the Uttar Pradesh GST Act empowers authorities to issue show cause notices and pass orders for tax evasion or fraud. However, Section 93 of the Act specifically addresses the liability for tax, interest, or penalty in cases where the liable person dies. It stipulates that if the business is continued by legal representatives, they are liable, or if discontinued, the legal representatives are liable to pay from the deceased's estate.

The Court relied heavily on the Division Bench precedent from a recent judgment involving a similarly situated deceased proprietor. The precedent clarified that Section 93 does not authorize the issuance of show cause notices or determination orders against a deceased person themselves but addresses liability of legal representatives.

Court's interpretation and reasoning: The Court interpreted Section 93 as a provision that only governs the liability of legal representatives after the death of the person liable to pay tax. It does not empower the tax authorities to initiate or continue proceedings against the deceased individual. The Court emphasized that the determination of tax dues must be directed towards the legal representative or heirs, not the deceased.

Key evidence and findings: The petitioner's father, the proprietor, died on February 17, 2021. Subsequently, the wife applied for cancellation of registration, which was granted on July 29, 2022. Despite knowledge of the proprietor's death and cancellation, the authorities issued a show cause notice on September 12, 2022, and passed an ex parte order on March 10, 2023, against the deceased proprietor.

Application of law to facts: The Court found that since the show cause notice and order were issued against a deceased person without involving the legal heirs or representatives, the proceedings were initiated in violation of the legal framework under Section 93. The authorities failed to issue notice or provide opportunity to the legal representatives, rendering the proceedings invalid.

Treatment of competing arguments: The authorities did not contest the death or the cancellation of registration but proceeded ex parte. The petitioner argued that the proceedings were bad in law as they were initiated against a deceased person and without involving legal heirs. The Court accepted the petitioner's submissions based on statutory interpretation and precedent.

Conclusion: Proceedings under Section 74 cannot be initiated against a deceased person. The tax authorities must proceed against the legal representatives or heirs in accordance with Section 93. The show cause notice and order issued against the deceased proprietor are invalid.

Issue 2: Procedural propriety and requirement of notice to legal representatives

Relevant legal framework and precedents: Section 93(1) of the Act mandates that if the business is continued by legal representatives, they are liable to pay tax dues. If discontinued, the legal representatives are liable to pay from the estate. The procedure necessitates issuance of notice and opportunity to the legal representatives before determination of tax or penalty.

Court's interpretation and reasoning: The Court held that it is a sine qua non that legal representatives must be issued a show cause notice and given an opportunity to respond before any determination or recovery is made. The absence of such notice amounts to a violation of principles of natural justice and statutory mandate.

Key evidence and findings: The show cause notice and order were uploaded on the portal but were not brought to the knowledge of the legal heirs. The wife of the deceased proprietor had also expired, and the petitioner, the son, was unaware until after the orders were passed.

Application of law to facts: The Court found that since the legal heirs were not served notice or given opportunity to respond, the proceedings were ex parte and unsustainable. The authorities failed to follow the due process required under the Act.

Treatment of competing arguments: The authorities did not demonstrate any attempt to notify or involve the legal representatives. The petitioner's argument that the initiation of proceedings without notice to heirs was illegal was accepted.

Conclusion: The procedural requirement of issuing show cause notice to legal representatives and providing opportunity to respond is mandatory. Failure to do so invalidates the proceedings.

Issue 3: Effect of cancellation of registration and knowledge of death on initiation of proceedings

Relevant legal framework and precedents: The cancellation of registration effectively ends the business entity's existence under the Act. Knowledge of death of the proprietor is a material fact that must be considered before initiating proceedings.

Court's interpretation and reasoning: The Court observed that despite cancellation of registration and knowledge of death, the authorities proceeded with show cause notice and order against the deceased. This demonstrated procedural impropriety and lack of adherence to statutory requirements.

Key evidence and findings: The registration was cancelled on July 29, 2022, and the show cause notice was issued on September 12, 2022. The authorities had knowledge of the death but did not alter their course of action accordingly.

Application of law to facts: The Court concluded that the initiation of proceedings after cancellation and death without involving legal heirs was legally impermissible.

Treatment of competing arguments: The authorities did not justify the initiation of proceedings despite cancellation and death. The petitioner's contention that the proceedings were bad in law on these grounds was upheld.

Conclusion: Cancellation of registration and knowledge of death preclude initiation of proceedings against the deceased. Proper procedure requires involvement of legal heirs.

3. SIGNIFICANT HOLDINGS

- "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."

- "It is inherent that proceedings cannot be initiated against a person who is deceased. Thus, proceedings cannot be initiated against the legal heirs of the deceased or against the estate of the deceased. However, it was open to the authorities to proceed in proper manner against the legal representative/heirs of the deceased proprietor and having failed to do so, the entire proceedings initiated from the stage of show cause notice is bad in law."

- The Court quashed and set aside the show cause notice dated September 12, 2022, and the impugned order dated March 10, 2023, passed under Section 74 of the Act against the deceased proprietor.

- The Court granted liberty to the tax authorities to proceed against the petitioner or other legal representatives in accordance with law, if so advised.