Service Tax Proceedings Under Section 73 After Death of Service Provider: Orissa High Court Clarifies Legal Position

Background and Context

The Orissa High Court in Smt. Kanakalata Senapati Vs Assistant Commissioner GST and Central Excise has categorically held that a “legal heir” is not covered within the scope of Section 65(7) of the Finance Act, 1994, and therefore service tax proceedings initiated under Section 73 cannot lawfully continue after the death of the service provider. Any adjudication order passed in the name of a deceased assessee was held to be void in law.

This judgment draws heavily from the principle laid down by the Hon’ble Supreme Court of India in Shabina Abraham Vrs. Collector of Central Excise and Customs, (2015) 10 SCC 770, and reiterates that in the absence of a specific statutory provision authorising continuation of proceedings against legal heirs, such proceedings abate on the death of the service provider.

Facts of the Case

Business Activity of the Deceased Assessee

  • The petitioner's husband, Late Atal Bihari Senapati, operated a small lodging establishment under the name “Senapati Palace”, offering basic room accommodation primarily to lower and middle income guests.
  • The property comprised eighteen rooms with modest facilities, let out at daily tariffs ranging between Rs. 500.00 and Rs. 800.00 during Financial Years 2015-16 and 2016-17.
  • As the per day room rent was below the prescribed threshold, the services fell outside the charging provisions of the Finance Act, 1994, and there was no statutory obligation to obtain service tax registration or file service tax returns for those years.

Income Tax Compliance by the Deceased

  • The gross receipts from the lodging activity were approximately:
    • Rs. 57,77,263.00 for F.Y. 2015-16; and
    • Rs. 63,64,363.00 for F.Y. 2016-17.
  • To ensure proper disclosure of income under the Income Tax Act, 1961, Late Atal Bihari Senapati had:
    • maintained books of account,
    • subjected them to audit, and
    • filed his income tax returns after paying the due tax.

Trigger for Service Tax Proceedings

  • Based on information accessed from the Income Tax Department’s web portal, the jurisdictional Superintendent of Goods and Services Tax and Central Excise formed a presumption that the assessee was rendering taxable services liable to service tax.
  • Despite the fact that the category of service was not clearly identified and there was no material to show that the activity fell outside the negative list under Section 66D or beyond the Mega Exemption Notification No. 25/2012-ST dated 20.06.2012, the authority proceeded on the basis that:
    • the assessee had failed to obtain registration,
    • had not paid service tax on allegedly taxable receipts, and
    • had contravened various provisions including Section 66B, Section 67, Section 68, Section 69 and Section 70 read with the Service Tax Rules.

Demand-cum-Show Cause Notice

  • A Demand-cum-Show Cause Notice (SCN) dated 30.12.2020 was issued proposing:
    • recovery of unpaid service tax and cess under Section 73 of the Finance Act, 1994,
    • levy of interest under Section 75, and
    • imposition of penalties under Section 77 and Section 78.

Death of the Assessee and Intimation to Department

  • During the COVID-19 pandemic, the noticee, Late Atal Bihari Senapati, passed away on 04.06.2021.
  • The petitioner's side intimated the Department about his demise and submitted a copy of the death certificate, referring specifically to the outstanding SCN.
  • An application bringing this fact to the notice of the Assistant Commissioner, Central GST and Central Excise, Bhubaneswar-II Division was filed and acknowledged on 03.06.2024.

Adjudication Order Passed Against a Deceased Person

  • Despite the explicit information that the noticee had died, the successor-in-office of the original adjudicating authority proceeded to pass an ex parte Order-in-Original dated 30.08.2024 under Section 73, Section 75, Section 77 and Section 78 in the name of the deceased assessee.

  • Subsequently, a recovery communication dated 30.05.2025 was issued by the jurisdictional Superintendent under Section 87 of the Finance Act, 1994, seeking to recover the alleged arrears.

  • Aggrieved, the widow, **Smt.