Penalty under Central Excise 'Zindagi ke saath bhi, Zindagi ke baad bhi'
IN the Chief Commissioners' Conference held in August 2012, a point was raised that the arrears of penalties imposed on individuals, who are no more, may be waived off.
The CBEC examined the issue and observed that there are contrary decisions on the issue of recovery of amount of penalty, which has been imposed on an individual during his lifetime, from his legal heir against the personal properties left behind by the defaulters. High Courts of Kerala and Patna have given judgements in favour of the department by ruling that the proceedings can be continued against the personal assets in the hands of the legal heirs. On the other hand, the High Courts at Allahabad and Calcutta have ruled that the penalty imposed in such cases cannot be recovered from the legal representatives of the deceased.
So, Board has decided not to issue any instructions and the fileld formations are advised to take action to realise such arrears in accordance with the statutory provisions and legal pronouncements in this regard.
In the case of Manjit Sethi vs. Collector of Customs, Chandigarh, the Tribunal had in its Order No. 259/94-A, dated 14-9-1994 observed-
"Generally penalty dies with the deceased. It is settled principle that penalty cannot be imposed after death and even if it was imposed but not recovered during his life time, the same cannot be recovered from the legal heirs. In other words, penalty cannot be imposed after death of the concerned person and if imposed the same cannot be recovered from the legal heir."
In Bhuban Mohan Mitter Charitable Trust vs ITO, the ITAT held,
In criminal jurisprudence a crime dies with a man and the legal representative of the deceased offender or criminal cannot be penalised for the offences or crimes committed by the deceased. If this cardinal principle of criminal jurisprudence is also applied to the penalty proceedings under the Income-tax Act which as stated above, are considered as quasi-criminal in nature then we are of the view that quasi-crimes also die along with the deceased and, therefore, it will be highly irrational, harsh and inequitable to penalise or punish the legal representatives in respect of quasi-crimes committed by the deceased.
But the Income Tax Act in Section 159 clearly stipulates:
(1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased.
(2) xxxxxx
(3) The legal representative of the deceased shall, for the purpose of this Act, be deemed to be an assessee.
There are no such provisions under the Customs, Excise or Service Tax Laws. Let us take the case of a Service Tax assessee who is an individual, and see these four situations:
1. He collects Service Tax from his clients, but dies before paying the tax or filing the return.
2. He does not collect the tax but provides service and dies before the tax could be paid to the Government. His heirs may or may not collect the amounts including tax from the clients.
3. Notice is issued demanding Service Tax and penalty; he dies before replying to the notice.
4. Adjudication order is passed demanding tax and penalty; he dies before paying or appealing.
In each of the above situations, what is the liability of the legal heirs?
Because of conflicting High Court decisions, the Board does not want to take a decision and leaves it to the field.
An individual assessee has no right to die in peace, at least his legal heirs have no right to live in peace for the taxman's reach is beyond the grave.
Please see Penalty dies with deceased
CBEC Letter in F.No.296/110/2012-CX-9, Dated: June 18, 2013