Recovery Proceedings Against Legal Heirs of Sole Proprietors: Invalidity of Demand Notices Issued Against Deceased Exporters 2024 (9) TMI 334 - DELHI HIGH COURT - HC

Deciphering Legal Judgments: A Comprehensive Analysis of High Court's Judgment on Safeguarding Legal Heirs from Automatic Devolution of Customs Liabilities Reported as: 2024 (9) TMI 334 - DELHI HIGH COURT INTRODUCTION This case deals with the recovery of drawback benefit availed by an exporter along with applicable interest and penalty. The core legal question is whether a demand notice can be issued against a deceased person and if recovery proceedings can continue against their legal heirs. ARGUMENTS PRESENTED The petitioner, wife of the deceased exporter, argued that the demand notice was issued after her husband's death, making it invalid. She relied on Supreme Court's decision in Shabina Abraham [ 2015 (7) TMI 1036 - SUPREME COURT] to contend that no recovery can be effected from legal heirs of a sole proprietor. The respondent contended that upon the exporter's death, recovery proceedings would not abate, and government dues can be recovered from properties inherited by legal heirs. COURT DISCUSSIONS AND FINDINGS The court examined Section 75(1) of the Customs Act, 1962 , which stipulates that if export proceeds are not received, the drawback shall be deemed never allowed, and the government can specify the recovery procedure. The court noted that u/r 16-A of the Customs Drawback Rules, 1995 , issuance of notice is a condition precedent for recovering erroneously availed drawback. Issuing notice to a dead person is a fundamental jurisdictional error, rendering the subsequent proceedings invalid. The court relied on its earlier decisions in Savita Kapila [ 2020 (7) TMI 441 - DELHI HIGH COURT] , which held that a notice issued against a deceased person is null and void unless the legal representative submits to the jurisdiction without objection. ANALYSIS AND DECISION The court concluded that since the show cause notice was issued against a dead person, and the order-in-original was passed without bringing the legal representatives on record, the order confirming the demand and penalty, as well as the subsequent recovery notice, are liable to be set aside. The court agreed with the petitioner's reliance on Shabina Abraham [ 2015 (7) TMI 1036 - SUPREME COURT] and its own decision in Amandeep Singh Sehgal [ 2019 (8) TMI 97 - DELHI HIGH COURT] , which held that no recovery can be effected from legal heirs of a deceased sole proprietor unless a machinery provision in the Customs Act enables such continuation of proceedings. Consequently, the court quashed the show cause notice and recovery proceedings initiated against the deceased exporter. DOCTRINAL ANALYSIS This case reaffirms the legal principle that a demand notice or show cause notice issued against a deceased person is fundamentally flawed and invalid, as it lacks the jurisdictional basis to initiate proceedings. The court emphasized that issuing notice to the correct person is not merely a procedural requirement but a condition precedent for acquiring jurisdiction. Furthermore, the court upheld the doctrine established in Shabina Abraham that, in the absence of a specific machinery provision, recovery proceedings cannot continue against legal heirs of a deceased sole proprietor. This principle aims to prevent the automatic devolution of liabilities upon legal heirs, who may not have been involved in the business operations. The court's decision aligns with the principles of natural justice and due process, ensuring that proceedings are initiated against the correct party and that legal heirs are not unduly burdened with liabilities without a statutory basis. Full Text : 2024 (9) TMI 334 - DELHI HIGH COURT