Failure to register under the GST law amounts deliberate tax evasion

The Hon’ble Madras High Court in the case of Annai Angammal Arakkattalai (Pre Mahal) v. Joint Commissioner of GST [Writ Petition (MD) No. 28502 of 2022 dated January 28, 2025] dismissed the petition filed by the Assessee wherein the entire claim against the Assessee was arisen of its failure to register itself under GST and only pursuant thereto, the Assessee remitted tax. On perusal of the orders indicate that there was deliberate attempt to evade payment of tax by not registering and issuing receipts as donation to trust and only after inspection Assessee agreed to pay tax. The orders did not call for any interference and therefore, instant petition was to be dismissed. 

Facts:

M/s Annai Angammal Arakkattalai (Pre Mahal) (“the Petitioner”) is a charitable trustandruns a marriage hall under the name and style of M/s Prem Mahal and is registered as service provider under the CGST Act w.e.f. February 14, 2020.

A Preventive Unit of the CGST Department (“the Respondent-1”) visited the marriage hall on January 23, 2020 and summoned the Petitioner to submit documents upto March 31, 2019.

On perusing the documents, the Respondent-1 arrived at a receipt of Rs.3,86,36,410/- for the marriage hall from July, 2017 to January, 2020. The Petitioner paid GST liability and as penalty under cum-tax basis method in accordance with Rule 35 of the Central Goods and Services Rules, 2017 (“the CGST Rules”). Thereafter, the Respondent issued a Show Cause Notice dated December 31, 2021 (“the SCN”) with GST liability , rejecting the cum-tax basis benefit claimed by the Petitioner and demanding the balance GST liability along with interest and penalty.

The Petitioner filed a reply to the SCN dated January 12, 2022 stating that the Petitioner neither suppressed any payments nor wilfully misrepresented.

Subsequently, the Respondent-1 passed an Order dated February 23, 2022 (“the Impugned Order-1”), demanding balance GST liability along with interest and full amount of GST liability as penalty. Thereby, the Respondent-1 invoked Section 74(1) of CGST Act rejected the Petitioner’s claim of cum-tax basis benefit was rejected.

The Petitioner filed an appeal against the Impugned Order and contended that tax element is included in the total value of taxable supply and Petitioner is entitled to arrive GST liability applying cum tax basis under Rule 35 of CGST Rules. Further, no penalty shall be levied since the Petitioner already discharged full tax liability as per Section 73(8) of the CGST Act even before the initiation of proceedings. The Respondent-2 confirmed the Order dated July 29, 2022 (“the Impugned Order-2”).

Hence, aggrieved by the Impugned Order passed by the Respondent, present writ petition was filed by the Petitioner.

Issue:

Whether failure to register under the GST law amounts to deliberate tax evasion?

Held:

The Hon’ble Madras High Court in Writ Petition No. 28502 of 2022 held as under:

• Observed that, the entire claim against the Petitioner had arisen of its own failure to register itself under the GST as required under law. The Petitioner got itself registered and remitted the tax that he was 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.
• Noted that, only pursuant to the inspection effected by the Respondent-1, the Petitioner had submitted himself for payment of tax. Hence, the same cannot be said to be a voluntary payment and has been made only to wriggle out of the penal consequences. This conduct of the Petitioner to evade tax will also fall under suppression and fraudulent activities envisaged under Section 74 of the CGST Act. Hence, the contention that Section 74 of the CGST Act cannot be invoked against the Petitioner cannot be countenanced.
• Held that, on perusal of the Impugned Order clearly indicate 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. This conduct cannot be said to be a voluntary conduct. There has been contraventions of provisions of the GST Act for which the Petitioner is liable to make good the non-payment and also suffer penal consequences for the same.

Our Comments:

Section 22 of the CGST Act governs “Persons liable for registration.”. Section 22(1) of the CGST Act enumerates that every supplier shall be liable to be registered under the CGST Act in the State or Union territory, other than special category States, from where the Assessee makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees.

However, where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees. Further, the Government may, at the request of a special category State and on the recommendations of the Council, enhance the aggregate turnover referred to in the first proviso from ten lakh rupees to such amount, not exceeding twenty lakh rupees and subject to such conditions and limitations, as may be so notified. Lastly, the Government may, at the request of a State and on the recommendations of the Council, enhance the aggregate turnover from twenty lakh rupees to such amount not exceeding forty lakh rupees in case of supplier who is engaged exclusively in the supply of goods, subject to such conditions and limitations, as may be notified.

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