ON DEATH OF DIRECTOR OF ASSESSEE COMPANY HIS LEGAL HEIRS CANNOT BE SUBSTITUTED

[Mr. M. GOVINDARAJAN]

In criminal case when the accused died the case against the said accused shall automatically abated.  The ultimate object of the criminal proceedings is to punish the accused on his conviction of any offence. Therefore, the criminal proceedings abate on the death of the accused, as their continuance thereafter will be infructuous and meaningless.  In civil cases the legal heirs can be substituted for the deceased party. The Karnataka High Court, in one case, has said that a trial court cannot reject an application made by legal representatives seeking to come on record following  the death of the sole plaintiff to a suit, without considering whether the 'right to sue' survives on the legal representatives.

Whether the Central Excise Department can move against legal heirs of a deceased person to recovery the penalty imposed under the Act?  The Calcutta High Court held that the Department cannot initiate action against the legal heirs of the deceased assessee in  COMMISSIONER OF CGST AND CENTRAL EXCISE. HOWRAH COMMISSIONERATE VERSUS M/S. ASHIRWAD FOUNDRIES PRIVATE LIMITED AND ANR. - 2022 (7) TMI 140 - CALCUTTA HIGH COURT.

In the above said case the second respondent was the Director of the first respondent company.  The Revenue completed the adjudication proceedings and the order was passed by the Commissioner of Central Excise on 28.10.2017.  The Company and the Director filed an appeal before the Appellate Tribunal.  The Tribunal allowed the appeal.  The Revenue challenged the order before High Court.  In the meanwhile the Director of the company, the second respondent in this case passed away on 14.09.2019.  The Revenue filed an application before the High Court to bring on record two legal heirs of the second respondent as the successors in the interest of the deceased second respondent.  The same was opposed by the respondents.  The respondent company filed an application with a prayer that the name of the second respondent should be withdrawn from the present appeal rather his name should be expunged from the cause list and the Revenue cannot proceed against the deceased second respondent.  It was contended the application of substitution of legal heirs is not maintainable.

The Revenue contended that the Certificate Officer can proceed against the legal representatives in view of Section 52 of the Public Demand Recovery Act, 1914.

The High Court considered the submissions put forth by the parties to the appeal.  The High Court relied on the following judgments for the purpose of this case-

• SHABINA ABRAHAM AND OTHERS VERSUS COLLECTOR OF CENTRAL EXCISE & CUSTOMS - 2015 (7) TMI 1036 - SUPREME COURT

One  sole proprietor was manufacturing tyre and rubber products.  He  stopped its production during October 1985.   A show cause notice was issued to him on 12.06.1987 alleging that the petitioner was manufactured and cleared tread rubber from the factor by suppressing the fact of such production with the intent to evade payment of tax.  The Revenue demanded tax and penalty.  The proprietor passed away on 14.03.1989.  After his death a second show cause notice was issued to the wife of the proprietor and his four daughters directing them to give reply to the show cause notice dated 12.06.1987.  They replied that there were having no concern with the deceased in his business and they were not able to locate any record.  The proceedings abated on the death of her husband in the absence of any provision in the Central Excise and Salt Act to continue assessment proceedings against a dead person in the hands of legal heirs.  Therefore the show cause notice issued is without jurisdiction.  The Revenue did not pass order on the said reply.  Therefore the legal heirs filed a writ petition before Kerala High Court which quashed the show cause notice proceedings against the legal heirs.  The Revenue filed appeal before the Division Bench against the order of Single Judge.  The Division Bench allowed the appeal filed by the Revenue by reversing the order of Single Judge.  Against this order the legal heirs filed the present appeal before the Supreme Court.

The Supreme Court analyzed the provisions of Central Excise and Salt Act and agreed with the contentions of the appellants that there is not separate machinery provided under the Central Excise and Salt Act to proceed against the dead person when it comes to assessing him to tax under the Act.  The Supreme Court observed that the provisions of the Income Tax Act were the same until Section 24B was introduced by the Income Tax (Second Amendment) Act, 1993.

The Supreme Court further observed that under the Income Tax Act an assessee means that a person by whom income tax is payable whereas under the Central Excise and Salt Act he is the person who is liable to pay duty of excise under this Act.  Since the present tense is being used it is clear that the person referred to can only be a living person.

The Revenue contended that the principles applies in Income Tax Act should not be applied to the Central Excise and Salt Act since the said Act is a tax on manufacturing of goods and not on the person.  This was rejected by the Supreme Court.  Reliance was placed by the Revenue which defines the term ‘person’.  The Supreme Court rejected the same holding that the definition does not include legal representatives of person who are dead.  Further the Act does not say anything about how a dead person’s assessment is to continue after his death in respect of excise duty that may have escaped assessment.

• THE COMMISSIONER OF CENTRAL EXCISE, BANGALORE-III VERSUS SHRI DHIREN GANDHI - 2012 (6) TMI 556 - KARNATAKA HIGH COURT

In this case it was held that legal heirs who are not the persons chargeable  to the duty under the Act and cannot be brought within the ambit of the Act by stretching its provisions.  The Supreme Court took note of the King’s Bench in ‘Cape Brandy Syndicate v. IRC’  - (1921) 1 KB 64 in which it was pointed out that in a taxing statute one has to look what is clearly stated.  There is no presumption as to tax.  One can look fairly at the language used.  The Supreme Court also referred to the decision in ‘CST v. Modi Sugar Mills Limited’ – AIR 1961 SC 1047 in which it was held that taxing statute is to be interpreted on any presumptions and the Court must look  squarely at the words of the statute and interpret them.  It cannot imply anything which is not expressed. 

The High Court rejected the contentions of the Revenue that the legal heirs can be proceeded for the recovery of the tax dues of the deceased assessee.  The High Court dismissed the appeal filed by the Revenue on the ground that the substitution of the legal heirs for the deceased assessee as the same is not maintainable.  The High Court further held that the judgment of Supreme Court in ‘Shabina Abraham’ (supra) case is applicable to the present case.  The High Court dismissed the appeal  and deleted the second respondent from the array of the parties and affirmed the relief given to the name of deceased person by Tribunal.  The High Court gave liberty to the Revenue to argue the matter against the company, the first respondent.