'Person Chargeable with Tax' u/s 73, 74 & 74A Includes Legal Heirs for Recovery u/s 93: Madras HC [Read Order]

The Madras High Court has held that the expression “person chargeable with tax” under Sections 73, 74 and 74A of theCentral Goods and Services Tax (CGST) Act, 2017 include legal heirs for the purpose of recovery under Section 93.

The Single bench held the GST authorities are competent to initiate fresh proceedings against legal heir even though no proceedings were initiated against the deceased taxpayer during his lifetime.

The petitioner, the widow of a deceased sole proprietor (who is the legal heir) of M/s Vasu Chemicals, challenged proceedings initiated under Section 74 of the CGST Act for the financial year 2018-19. The proprietor had died on March 5, 2019, following which the business was discontinued and the GST registration was cancelled.

After six years, the GST Department initiated proceedings against the legal heir by issuing notices in Form DRC-01A and DRC-01 alleging non-filing of returns in respect of certain e-way bills. After considering her reply, the Department confirmed tax, interest and penalty under Section 74. Thus, filed this petition.

According to the petitioner, although Section 93 permits recovery of tax dues from legal heirs, it must be read harmoniously with Sections 73 and 74, which require issuance of a show cause notice to the “person chargeable with tax” before determination of liability.

It was contended that the expression referred only to the original taxable person upon whom the statutory incidence of tax falls and not to legal representatives. Since no proceedings had been initiated against the deceased proprietor during his lifetime, fresh proceedings against the legal heir were claimed to be without jurisdiction.

The court rejected this contention and said that it could not accept the narrow position taken by the petitioner.

“I am unable to accept the contention that the expression “person chargeable with tax” occurring in Section 74 must either be equated with the concept of levy or be confined to the definition of “taxable person” contained in Section 2(107) of the CGST Act”, said the court.

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Justice D. Bharatha Chakravarthy observed that Section 93 expressly contemplates two situations, where the business is continued after the death of the taxable person and where it is discontinued.

In the latter case, the provision specifically authorises recovery of tax, interest and penalty from the legal representative out of the estate inherited by him or her, irrespective of whether the liability had been determined before the death of the taxable person or is determined thereafter.

“Section 74 of the CGST Act does not employ the expression “taxable person” but uses the wider expression “person chargeable with tax”. The said expression cannot be confined only to a taxable person as defined under Section 2(107) of the CGST Act” observed the court.

According to the Court, the phrase includes every person upon whom the statute imposes an obligation to discharge tax liability, including legal heirs made liable under Section 93, recipients liable under the reverse charge mechanism, electronic commerce operators and other persons on whom statutory liability is imposed under the Act.

The single bench also observed that “The Legislature has consciously employed the expression “person chargeable with tax” in Section 74 instead of the narrower expression “taxable person”. A careful reading of Section 9(1) of the CGST Act indicates that the levy is on the supply of goods or services or both, while the liability to pay the tax is fastened upon the taxable person or such other person as may be provided under the Act. Therefore, the expression “person chargeable with tax” must be understood as referring to any person upon whom the statute imposes the obligation to discharge the tax liability.”

The court also observed that once Section 93 permits tax liability to be “determined after the death” of the taxable person, the expression includes the entire adjudicatory process contemplated under Sections 73, 74 and 74A, including issuance of show cause notices, adjudication and passing of final orders.

Justice Chakravarthy observed that "A taxing statute creating a liability must ordinarily be construed in accordance with its plain language, and the Court cannot read into the provision limitations which the Legislature has consciously omitted.”

The High Court, therefore decided that even where the business of a deceased taxable person has been discontinued and no show cause notice or assessment proceedings had been initiated during the person's lifetime, fresh proceedings under Sections 73, 74 or 74A of the CGST Act may validly be initiated against the legal heir by virtue of Section 93.

However, the bench also clarified that where the business stands discontinued, the legal representative's liability remains confined to the extent of the estate inherited from the deceased and cannot exceed the value of such inherited assets.

Accordingly, the writ petition was dismissed by upholding assessment proceedings can be initiated against the legal heir.

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