GST: Transfer of Business in the case of Death of Proprietor

GST: Transfer of Business in the case of Death of Proprietor 

Business transfers are subject to GST since they are regarded as supplies. The company is exempt, however, if it is sold as a continuing concern, including all of its liabilities and assets. There are numerous ways to transfer a firm, including direct sales, mergers, demergers, amalgamations, and transfers in the event of the owner's passing. In this post, we'll talk about the laws and procedures that apply when a proprietorship business is transferred as a result of the owner's passing.

In a sole proprietorship, only one individual is the legal owner of the company. The GST law offers a facility whereby the legal heirs can continue the business if they so choose and has provided with precise instructions on how such transfer shall take place. Legally, the business terminates with the proprietor's death, but practically, it continues after him. Legal heirs of the business have the choice to either continue it after the owner's passing or to shut it down.

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:

a.       Section 29 allows legal heirs to file application for cancellation. Therefore, legal heirs will have to get themselves registered as Authorised Signatories.

b.       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).

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

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

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

f.        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)].

g.       File GSTR-10 - Final Return within 3 months from date of cancellation order. Or date of cancellation whichever is later [Section 45].

h.       ITC in electronic credit ledger will lapse.

In case any liability of GST arises after the death of the 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 proprietor to the extent to which the estate is capable of meeting the charge [Section 93(1)(b)]

Option 2: Continuance of Business

If option exercised by the legal heirs is that they will continue the business of the deceased proprietor then the following will be applicable:

·       As per Section 29 the registration of the deceased proprietor is still liable to be cancelled.

·       Steps to be taken by the Legal Heirs:

a.       Apply for fresh registration citing reason as Death of Proprietor and Date on which liability arises as Date of death of deceased proprietor.

b.       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 proprietor.

c.       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).

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

e.       Transfer the business

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

g.       Apply for cancellation of the registration of deceased proprietor within 30 days and file GSTR10

h.       No requirement to pay GST on ITC contained in inputs & capital goods.

When a business is being run by legal heirs and a GST, interest, or penalty liability emerges for the time the deceased owner owned and operated the business, the legal heirs will be responsible for paying the entire amount, regardless of the size of the deceased proprietor's estate. Article 93(1)(a)

It should be emphasised that only sole proprietorships are given the option of transferring their business upon death, and partnership enterprises are not included in this provision. As a result, under Section 42(c), if a partnership firm only had two partners and one of them passed away, the partnership would be dissolved and the business would cease to exist. The registration will be subject to cancellation, and a cancellation application must be submitted within 30 days. Everything else will operate as intended.

Since the GST does not allow for such a transfer, the remaining partner cannot continue the firm. The 'the partnership firm' in question does not exist. Even in cases where the partners had stipulated that upon death, their respective legal representatives would have the same duties and rights as the original partners: It is void since it is illegal. The cooperation has officially ended. It is still impossible for legal representatives to join a partnership. [S.P. MISRA & ORS. VERSUS MOHD. LAIQUDDINKHAN & ANR (SC)]

One particular capability offered by the GST law is the choice to continue a business after the death of the proprietor even if the registration is subject to cancellation.