Manager Continues Business Post-demise of Proprietor: Madras HC Refuses to quash S. 74 GST Order, Says S. 93 Liability May Arise [Read Order]

The Court held that continuation of business operations by the Manager, even after the proprietor's death, may raise tax liability and left open the possibility of proceedings under Section 93 of the Act.

The writ petition was filed by the legal heir of the deceased proprietor of Tvl. Vairam Agencies Vodafone Cell, which had been engaged in the business of selling Vodafone recharge coupons. The petitioner, R. Ramesh, challenged the assessment order dated 05.02.2025 issued by the State Tax Officer, Pudukkottai-II Assessment Circle, for the financial year 2017–18.

GST Ruling – A Verdict That Changes Everything! Click here

The petitioner’s argument rested on two grounds. Firstly, that the business had ceased to operate upon the death of his father (the proprietor) on 02.09.2017. Secondly, that the order passed under Section 74 was time-barred, given the extended deadline for filing the annual return was 05.02.2020, and the three-year limitation for completion of assessment under Section 74(10) would end on 04.02.2025.

The petitioner submitted that After the demise of the petitioner's father on 02.09.2017, instructions were given to the Manager to close and wind up the business. However, it is submitted that the said Manager continued to operate the business and as a result, tax liability has been saddled in the name of the deceased person.

Justice C. Saravanan, presiding over the matter, rejected both contentions. It was noted that notwithstanding the death of the proprietor, the business had continued to operate. Inward supplies from Vodafone were recorded till 31.03.2018, amounting to ₹3.45 crores, leading to a deemed outward supply value of ₹3.79 crores under Rule 30 of the CGST Rules, 2017. The resultant GST liability was calculated to be ₹68,38,728 (CGST and SGST of ₹34,19,364 each) at an 18% tax rate.

While refusing to quash the assessment order, the Court acknowledged the peculiar facts of the case and indicated that tax liability could be fastened under Section 93 of the GST Acts, which deals with tax dues in which business continued to operate even after the death of a proprietor.The Court observed that a reply to the show cause notice was duly submitted and considered. It was further recorded that the notice in Form DRC-01 had been served both by registered post and via upload on the GST portal. The petitioner had not filed returns or disputed the business operations during the interim period.

On the limitation issue, the Court clarified that the computation of the limitation period under Section 74(10) must be in accordance with Section 9 of the General Clauses Act, 1897. Since the limitation period commenced on 06.02.2020, the last date to pass the assessment order would be 05.02.2025, which was duly complied with.

While refusing to quash the assessment order, the Court acknowledged the peculiar facts of the case and indicated that tax liability could be fastened under Section 93 of the GST Acts, which deals with tax dues in which business continued to operate even after the death of a proprietor.

The Section 93 states that “Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, where a person, liable to pay tax, interest or penalty under this Act, dies, then–

1. if a business carried on by the person is continued after his death by his legal representative or any other person, such legal representative or other person, shall be liable to pay tax, interest or penalty due from such person under this Act; and
2. if the business carried on by the person is discontinued, whether before or after his death, his legal representative shall be liable to pay, out of the estate of the deceased, to the extent to which the estate is capable of meeting the charge, the tax, interest or penalty due from such person under this Act, whether such tax, interest or penalty has been determined before his death but has remained unpaid or is determined after his death.”

Further, the Court granted liberty to the petitioner to pursue the appellate remedy under Section 107 of the Act, subject to statutory pre-deposit conditions, and directed the Appellate Authority to consider such appeal on merits if filed within 30 days.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates