GST Registration After Inspection Not A Voluntary Conduct; Amounts To Tax Evasion: Madras High Court Upholds Penalty

Date:

The Madras High Court while upholding the penalty has held that GST registration after inspection is not a voluntary conduct and it amounts to tax evasion.

The bench of Justice K.Kumaresh Babu has observed that there is a deliberate attempt to evade payment of tax by not registering himself under the Act and also issuing receipts as donation to the Trust. Only after the inspection they have agreed to pay the tax by registering themselves. 

The petitioner/assessee is the charitable trust having registered office at Karur. Under the said trust petitioner runs a marriage hall under the name and style of M/s.Prem Mahal at Kovai Road. The petitioner registered as service provider under CGST Act w.e.f. 14.02.2020.

The CGST department preventive unit visited the marriage hall on 23.01.2020 and asked to handover entire accounts and records. Hence, the manager of the petitioner submitted the same. Further, on summon the petitioner submitted ITR, Balance Sheet and Profit and Loss account upto 31.03.2019 along with bank statement of the Trust and Trustees. Moreover, the petitioner specifically stated that some amounts are reimbursable to the persons concerned.

As per the documents the GST authority of Preventive Unit arrived at a receipt of Rs.3,86,36,410/- for the marriage hall from July, 2017 to January, 2020. In the meanwhile, the petitioner paid a sum of Rs. 58,93,702 as GST liability and a sum of Rs.8.84,056 as penalty liability under cum-tax basis method applying Rule 35 of CGST Rules. 

The department issued show cause notice arriving a sum of Rs.69,54,554/- as GST liability for the total value of Rs.3,86,36,410/- and rejected the cum-tax basis benefit claimed by the petitioner. 

The demanded balance GST liability along with interest and full amount of GST liability as penalty. The petitioner gave a reply on 12.01.2022, to justify the application of cum-tax basis method and objected to the interest and to invoke Section 74(1) CGST Act that the petitioner neither suppressed any payments nor willfully misrepresented. The total value arrived by the second respondent includes advance, reimbursable amount and GST. 

The department assumption is against the basic principles of indirect taxation and the petitioner is not liable to pay service tax as it is an agent of the government which has to be paid by the person concerned.

The entire claim against the petitioner had arisen of its own failure to register itself under the GST Act as required under law. The petitioner had remitted the tax that he is liable to pay. Even though, such action is claimed to be a voluntary payment by the petitioner, it should be seen that the petitioner had attempted to evade payment of tax which is liable to be taxed and only pursuant to the inspection effected by the respondent, the petitioner had submitted himself for payment of tax and hence, the same cannot be said to be a voluntary payment and has been made only to wriggle out of the penal consequences. 

The conduct of the petitioner to evade tax will also fall under suppression and fraudulent activities envisaged under Section 74 of the GST Act. Hence, the contention that Section 74 cannot have been invoked against the petitioner cannot be countenanced.

The court while dismissing the petition held that both the Original Authority as well as the Appellate Authority have considered the case of the petitioner in its proper perspective and had applied the Provisions of law on the issue in its right perspective which do not call for any interference.

Read More: GST Evasion | Gold Transported For Sale Under The Pretext Of Showcasing In Exhibition: Madras High Court Refuses To Quash Confiscation Notice 

Case Details

Case Title:M/s.Annai Angammal Arakkattalai (Pre Mahal) Versus The Joint Commissioner or GST (Appeals)

Case No.: W.P.(MD)No.28502 of 2022 & WMP.No.22506 & 22507 of 2022

Date: 28.01.2025

Counsel For Petitioner: Joseph Prabhakar

Counsel For Respondent: R.Gowri Shankar

Mariya Paliwala
Mariya Paliwalahttps://jurishour.in/
Mariya is the Senior Editor at JurisHour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.

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