The recent High Court judgment has once again put in the limelight a very crucial provision of the GST Act — prohibition of serving tax notices to deceased taxpayers. The judgment has interpreted Sections 73(9) and 93 of the Central Goods and Services Tax (CGST) Act and reaffirmed the right process adopted by authorities while handling legal heirs of a deceased taxpayer.

Case Background

The matter is regarding a petitioner, a widow of a deceased taxpayer, who had appealed against a demand notice issued by the GST authorities for Rs. 25,28,251 under Section 73(9) of the GST Act. The demand notice was against her deceased husband, the sole proprietor of a registered firm. Notably, the company’s GST registration had itself already been cancelled with effect from the date of his demise, 6th July 2018. Despite that, a posthumous show-cause notice was issued to the deceased individual.

Legal Provisions Invoked

The key legal provisions invoked in the case at hand are as follows:

• Section 73(9) of the CGST Act: Facilitates determination of tax in case of non-payment or short payment.
• Section 93 of the CGST Act: Addresses the liability of legal representatives or legal heirs for tax, interest, or penalty payable by a deceased assessee.

The authorities of GST had submitted that Section 93 authorizes them to make the legal representatives liable for the tax payable by the deceased even if the tax demand is made subsequent to the death of the person.

Arguments Advanced by the Petitioner

The petitioner had submitted that:

• Her owner husband is deceased, and thus the firm’s GST registration was also canceled.
• A show-cause notice issued against the deceased directly is not legally valid.

Since the taxpayer entity was not a legal entity at that time, any demand notice issued in his name shall be considered as void.

The argument was based on the premise that tax assessment could not be carried out against someone who is deceased, and the law prescribes handling the legal heirs in its place

Department’s Argument

Alternatively, the GST department contended that:

• Section 93 of the GST Act makes legal representatives liable for any arrears of tax, interest or penalty payable by a deceased assessee.
• This liability can be extended even if the demand has been made after the death of the taxpayer, provided that it is to be made against the legal heirs. 

In essence, the department’s contention was that even though a dead taxpayer cannot be taxed, the legal heirs of the taxpayer can be made to pay any dues. 

High Court’s Observations

The High Court examined the provisions and observed the following:

• A post-mortem tax assessment and demand cannot lawfully be made against a deceased sole trader.
• Section 93 of the CGST Act does not authorize issuing the demand directly against the deceased. Instead, it makes the legal representative accountable, especially where the business continues or the estate is able to service the tax liability.
• The correct procedure is to issue a show-cause notice to the legal representative, providing an opportunity to respond before any final tax determination.

On these grounds, the Court quashed and set aside the impugned demand order issued directly against the deceased taxpayer.

Implications of the Judgment

This judgment clarifies certain important points for taxpayers, legal heirs, and GST authorities:

• Direct action against deceased taxpayers is not valid: Any posthumous tax notice delivered to the deceased cannot be sustained.
• Role of legal heirs: Section 93 can recover unpaid tax from legal heirs, but in the proper procedure.
• Due process is mandated: A show-cause notice must be issued to the legal representative before determining the tax liability.
• Issues of business continuity: Where the deceased’s business is still running, then the legal representative would be held accountable under the terms of Section 93.

For heirs, the ruling instils confidence and clarity that authorities cannot unilaterally issue tax notices to the deceased, thus ensuring that the law is interpreted equally and procedurally.

Takeaways for Taxpayers and Legal Representatives

• Legal provision awareness: Legal heirs should have an awareness of their rights and liabilities under the GST law.
• Legal response at the right time: Legal representatives should react to a show-cause notice promptly to avoid unnecessary penalties.
• Documentation for estate and continuity of business: Documentation can determine whether the estate or heirs are liable.
• Professional guidance: Seeking advice from a tax professional or lawyer can provide answers on how to effectively respond to GST notices.

Conclusion

The decision by the High Court serves as a useful reminder about the limits of powers of GST authorities and the need to respect due process while acting with respect to deceased taxpayers. Even though Section 93 makes the legal representative liable, it is not within the law to issue a tax determination against a deceased person. The authorities need to bring proceedings against the legal representative properly with procedural fairness and as per the CGTSA.

This ruling is particularly significant to sole proprietors and their beneficiaries inasmuch as it reinforces the importance of obtaining the appropriate legal procedure in tax matters upon the death of a taxpayer.