Corporate veil cannot alter sales tax incidence; cancellation of registration for alleged tax avoidance was set aside.

A separately incorporated company with its own sales tax registration and PAN could not have its registration cancelled merely on the allegation that it was formed to avoid additional sales tax. The HC held that lifting the corporate veil did not establish any change in the statutory incidence of additional sales tax, which remained governed by the principal's liability under Explanation I to Section 2(1)(aa) of the Tamil Nadu General Sales Tax Act, 1959. Departmental recognition of the company as a distinct entity and the relevant clarification supported that position. The cancellation reason was therefore unsound, and the registration cancellation was set aside.

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Issues: Whether cancellation of the petitioner's registration under the Tamil Nadu General Sales Tax Act, 1959 on the ground that the company was formed to avoid additional sales tax was sustainable, and whether such cancellation could alter the incidence of additional sales tax liability.

Analysis: The petitioner was a separately incorporated company with independent registration under the sales tax laws and a separate PAN, and the Commercial Taxes Department had itself recognised it as a distinct entity. The attempt to lift the corporate veil did not establish that the company's incorporation could change the statutory incidence of additional sales tax, which the Court found would not be affected even if the impugned order were sustained. The Court also noted that, under Explanation I to Section 2(1)(aa) of the Tamil Nadu General Sales Tax Act, 1959, the relevant liability rested on the principal, and the departmental clarification reinforced that position. The reason given for cancelling registration was therefore held to be unsound.

Conclusion: The cancellation of the petitioner's registration was unsustainable and was set aside.

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