Dead End for Tax Claims: High Court Rejects Liability Transfer Without Proof of Business Continuity

In a significant ruling for taxpayers, the High Court of Jharkhand at Ranchi has set aside an order attempting to transfer the GST liabilities of a deceased individual to his successor. The Division Bench, comprising Hon’ble the Chief Justice and Hon’ble Mr. Justice Rajesh Shankar, strictly observed that authorities cannot arbitrarily invoke provisions of the Central Goods and Services Tax (CGST) Act to saddle a legal heir with tax dues without concrete evidence of business continuity.

The Backdrop of the Dispute

The petitioner, Rishi Shangari, found himself at the center of a tax dispute regarding the proprietary concern of his late father, Navtej Kumar Shangari. Despite his father’s passing in February 2018, the GST authorities issued summons and, eventually, an adjudication order in late 2022.

The core of the conflict lay in the authorities' reliance on Section 93(1)(a) of the CGST Act, 2017, which dictates that if a business is carried on by a legal representative after the original owner's death, that representative is liable to pay the resulting tax, interest, or penalty. However, the petitioner had already obtained a fresh GST registration for his own business activities on March 24, 2018, immediately following his father's passing. The tax department ignored this distinction, asserting that the petitioner was liable for the unpaid GST of his father's firm for the 2018–2020 periods.

Arguments from the Trenches

The petitioner vehemently contested the order, presenting the death certificate of his father as evidence. He argued that since he had established a separate, independent registration, he could not be held responsible for the liabilities of a defunct proprietary concern unless it was proven that he had continued the specific business formerly possessed by his kin.

Conversely, the tax authorities maintained that the legal representative remains vicariously liable under the statutory framework of the CGST. They argued that the closure of the father's account did not exempt the successor from the dues accrued during the period of operation.

Legal Analysis: The Burden of Evidence

The High Court’s intervention turned on a fundamental point of administrative fairness. The Bench highlighted that the tax authorities failed to produce any material evidence demonstrating that the petitioner had taken over the specific proprietary business of his father.

By obtaining an independent registration, the petitioner had effectively charted his own tax compliance path. The Court noted that inferring business succession without a factual basis contradicts the principles of natural justice and the letter of the law. Statutory succession under Section 93 requires proof; it cannot be presumed merely through kinship.

Key Observations

The High Court’s frustration with the lack of evidence was palpable in the judgment:

• "The 3rd respondent did not provide details of any material evidence to show as to how the petitioner was said to be continuing business of the father’s proprietary concern."
• "In the absence of any material referred to by the said respondent as to on what basis it is held that the petitioner was continuing the business... we are of the opinion that the impugned order dt. 28.11.2022 is perverse."
• "The petitioner is liable to pay the entire GST due along with applicable interest and penalty of his late father’s firm [was held by the Respondent, but without evidence]."

Final Decision and Implications

The High Court allowed the writ petition and quashed the impugned order dated November 28, 2022.

This decision holds long-term implications for tax administration. It serves as a stern reminder to the Revenue department that legislative provisions like Section 93(1) are not blank checks. To hold a legal heir liable for the tax defaults of a deceased entity, the department must satisfy the burden of proof regarding the actual transfer and continuity of the business. For legal professionals and business owners, this reinforces the necessity of clearly documenting the discontinuation of sole proprietorships upon the death of an owner to avoid the "shadow" of retrospective tax liabilities.