Death of The Proprietor ( GST Implication)

[NILESH PITALE]

Respected Experts

1) In The Case of Death of The Proprietor, Can we Continued the Running Business with Legal Heir. ( Stock in Balance Sheet & ITC In Credit Ledger)

2) If No Legal Heir is Ready to Continued the Business ( Stock in Balance Sheet & ITC In Credit Ledger)

Please Guide what will Be the GST Implication in Both The case with Refer to ITC/ registration/ Returns.

Thanking you

[Rajagopalan Ranganathan]

Sir,

Query: 1: According to Section 22 (3) of CGST Act, 2017 “Where a business carried on by a taxable person registered under this Act is transferred, whether on account of succession or otherwise, to another person as a going concern, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession.”

Therefore, as per section 22(3) the legal heir/legal representative or successor of deceased person shall have to apply for new registration at common portal of GST by filing Form GST REG-1. The other reason for obtaining new registration is that the GST registration is PAN based registration.

According to Section 18(3) of CGST “Where there is a change in the constitution of a registered person on account of the sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.”

So, here the law required to the transfree or successor of deceased proprietor to transfer the input tax credit which remain unutilised in electronic credit ledger of deceased person to the electronic credit ledger of successor or transfree. i.e legal heir or legal representative.

According to Rule 41 of CGST Rules, 2017-

1. A registered person shall, in the event of a sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of the business for any reason, file FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee.

2. The transferor shall also submit a copy of a certificate issued by a practising chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities.

3. The transferee shall accept the details so furnished by the transferor at common portal in FORM GST ITC-02 and that unutilised credit shall be credited to his electronic credit ledger of transfree.

4. The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account.

But here it is also noteworthy that this procedure is to be followed if there is any unutilised credit is available in the electronic credit ledger of deceased person. If there is no ITC available in the electronic credit ledger then no need to file form GST ITC-02 by the transferor or transfree.

Query: 2: According to Section 29(1) of CGST Act, 2017 the proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration as per the law prescribed under the CGST Act, 2017.

So, it is clear under law that if the proper officer did not take any action in his own then the legal heir of decease proprietor shall make an application through online portal for cancellation of registration by filing FORM GST REG-16.

According to Section 93(1)(b) of CGST Act, 2017 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.

So, here the law bounds to the legal heir/legal representative or successor of deceased person to discharge the liability of tax, interest or penalty out of the estate of deceased person, whatever has been determined before his death but has remained unpaid or is determined after his death.

[Roshan Singh]

Hi Nilesh Pitale,

Answer for your queries as follows:

1. In The Case of Death of The Proprietor, Can we Continued the Running Business with Legal Heir. ( Stock in Balance Sheet & ITC In Credit Ledger):

You may follow the advice given by the our learned colleague Sh. Rajagopalan Ranganathan Ji

OR

You may refer the Circular No. 96/15/2019 - 28-3-2019 issued under CGST Act 2017.

2. If No Legal Heir is Ready to Continued the Business (Stock in Balance Sheet & ITC In Credit Ledger):

As per Section 29(1) of CGST Act 2017, Legal heirs of the registered taxable person shall apply for cancellation of registration in formGST REG-16and the procedure for cancellation of registration laid down inRule 22 of CGST Rules 2017have to be complied with.

As per Schedule II(4)(c) of CGST Act 2017, where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person unless-

(i) The business is transferred as a going concern to another person; or

(ii) The business is carried on by a personal representative who is deemed to be a taxable person.

In this case neither business is transferred as going concern nor carried on by personal representative therefore assets of the business shall be deemed to be supplied before he ceases to be taxable person.

Now since business assets shall be deemed to be supplied, section 29(5) of CGST Act 2017 is required to be complied with:-

As per Section 29(5) of CGST Act 2017, every registered person whose registration is cancelled is required to pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the –

1. With respect to Input: Whichever is higher of (a) or (b)

a. Credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation,

Or

b. The output tax payable on such goods

2. With respect to capital goods: Whichever is higher of (a) or (b)

a. Input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage (%) points as may be prescribed under CGST Rules 2017,

Or

b.Tax on the transaction value of such capital goods or plant and machinery under section 15 of CGST Act 2017.

Note: In case you left with the balance of ITC in electronic credit ledger after discharging the output tax liability then such ITC shall be lapsed.

Special provisions regarding liability to pay tax, interest or penalty

Section 93(1)(b) of CGST Act 2017, where a person, liable to pay tax, interest or penalty under this Act, dies, then 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.

AI Summary

Transfer of input tax credit: successor must obtain GST registration and effect electronic transfer of unutilised credit when business continues. Where a business is continued by a legal heir the successor must obtain fresh GST registration and the unutilised input tax credit in the deceased's electronic credit ledger may be transferred to the successor through the prescribed electronic procedure, with the transferee accounting for transferred inputs and capital goods. If no heir continues the business, registration must be cancelled and business assets are deemed supplies unless transferred as a going concern or carried on by a personal representative; on cancellation specified debits to the electronic credit or cash ledger are required and any remaining credit lapses.