Transfer of Business in case of Death of Proprietor under GST

Transfer or succession of business is a normal business phenomenon which has been taken care by the various taxation laws also. Transfer or succession of business may take place in various cases such as merger, demerger, amalgamation or death of proprietor etc. In this article, we have discussed the provisions of GST in case of death of the proprietor. There can be two scenarios in case of death of proprietor, either the business is discontinued or the business is continued by the legal heir or successor. In this article, both the scenarios are discussed in details as below.

Options available with legal heir:

In the event of death of proprietor, the legal heir has the following two options:
Option-1: Legal heir closes down the business
Option-2: Legal heir continues the same business

Option1: Discontinuance of business – If the option of discontinuation of business is exercised by the legal heirs following will be the consequence and the steps which will have to be taken are enumerated below: As per Section 29(1)(a) where the business is being discontinued due to death of proprietor the registration is liable to be cancelled. Before applying for cancellation certain steps needs to be taken: 1. Section 29 allows legal heirs to file application for cancellation. Therefore, legal heirs will have to get themselves registered as Authorised Signatories.

2. To be added as Authorised Signatories Amendment in Registration will not be done by the legal heirs themselves but will have to approach the jurisdictional officer. (Section 28 read with Rule 19 allows only registered person to apply for amendment registration)

3. Legal Heirs will have to prove that they are the legal heirs of the deceased (Legal Heirs are defined in the personnel laws as enforced on the date)

4. Ensure that all returns have been filed of the deceased. (The same can be checked in the portal)

5. Apply for cancellation within 30 days of date of death. Choose the reason of cancellation as death of proprietor. [The 30 days can be seen liberally in certain cases Circular 69/43/2018-GST] 6.

Pay GST of equivalent to the 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 the output tax payable on such goods, whichever is higher. [section 29(5)]

7. File GSTR-10 – Final Return within 3 months from date of cancellation order. Or date of cancellation whichever is later [Section 45] 8. ITC in electronic credit ledger will lapse.
in case any liability of GST arises after the death of proprietor and the legal heirs have opted for closure/discontinuance of business then the legal heirs shall be liable to pay the demand of GST along with interest and penalty out of the estate of the deceased to the extent to which the estate is capable of meeting the charge [ Section 93(1)(b) ]
If the application is found to be proper, the GST officer shall pass order for cancellation in FORM GST REG-19 with the effective date of cancellation being the date from which the applicant has sought cancellation. In any case, the effective date cannot be a date earlier to the date of application for the same.
In case of discrepancies in the application, the GST officer shall inform the applicant in writing and allow time period of 7 working days from the date of receipt of letter for removing discrepancies. On receipt of reply, the GST officer may approve the cancellation of registration in FORM GST REG-19. In case no reply is received within 7 days, the application shall be liable to be rejected by the GST officer.

Option 2: Continuance of Business – If option exercised by the legal heirs is that they will continue the business of the deceased then the following will be applicable: As per Section 29 the registration of the deceased is still liable to be cancelled.

Steps to be taken by the Legal Heirs: –

1. Apply for fresh registration citing reason as Death of Proprietor and Date on which liability arises as Date of death of deceased.
2. Section 29 allows legal heirs to file application for cancellation. Therefore, legal heirs will have to get themselves registered as Authorised Signatories in GSTIN of the deceased.

3. To be added as Authorised Signatories Amendment in Registration will not be done by the legal heirs themselves but will have to approach the jurisdictional officer. (Section 28 read with Rule 19 allows only registered person to apply for amendment registration)

4. Legal Heirs will have to prove that they are the legal heirs of the deceased (Legal Heirs are defined in the personnel laws as enforced on the date).

5. Transfer the business

6. Transfer ITC in the credit ledger of the deceased to the new registration by filing ITC-02

7. Apply for cancellation of the registration of deceased within 30 days and file GSTR10 8. No requirement to pay GST on ITC contained in inputs & capital goods.

Here in this case where business is being continued by legal heirs and any liability of GST along with interest and penalty arises for the period when the business was carried on by the deceased then the legal heirs will be liable to pay the whole amount without any limitation of the capability of estate of the deceased. [ Section 93(1)(a) ] It should be noted that the facility of transferring of business on death where the registration is liable to be cancelled is only being provided to proprietorship and it is not extending to partnership firms.

Therefore, in the case where a partnership firm had only two partners and one of the partners died then as per Section 42(c) the death of a partner will dissolve the partnership and the business will stand discontinued. The registration will be liable to be cancelled and application of cancellation will have to be filed within 30 days. All other provisions will apply accordingly.

The business cannot be continued by the remaining partner since there is no provision in GST for such transfer. The person in question ‘the partnership firm’ doesn’t exist. Even where the partners had agreed that on death their respective legal representatives will become partners with same rights and obligations: Void as it is against the law.

The partnership stands dissolved. There remains no partnership in which the legal representatives can become partners – S.P. MISRA & ORS. VERSUS MOHD. LAIQUDDINKHAN & ANR (SC] The option to continue a business on the death of the proprietor even when the registration is liable to be cancelled is an exceptional facility provided by the GST law.