2021 (3) TMI 1023 - HC - VAT and Sales Tax

Petitioner's Tax Evasion Results in Joint Liability, Wife Ordered to Pay Arrears

The court held that the petitioner breached the tax ceiling limit under the Tamil Nadu Value Added Tax Act, resulting in a substantial tax liability. The ... Compounded rate of tax - ceiling limit of ₹ 50,00,000/- was breached - lifting of Corporate Veil - fraudulent transfer of properties - HELD THAT:- The properties that were purchased by Saraswathy way back in the year 1981-1984 cannot of course be proceeded against. Likewise there is no question of passing any Garnishee order against M/s.MRF Limited as far as M/s.Sree Saraswathy Tyres is concerned - However till the liability as mentioned is liquidated by Saraswathy, the attachment order in respect of Saraswathy's immovable properties will remain. It is open to Saraswathy to pay the monetary value and get them raised. The assessing authority is directed to effect recovery of the sales tax arrears of M/s.Iyyappa Tyres in terms of the undertaking now given by Tmt.M.Saraswathy before this Court - Petition allowed. Issues:1. Tax liability under Tamil Nadu Value Added Tax Act, 2006.2. Joint and several liability of family members in business.3. Continuation of business by family member to avoid tax liability.4. Fraudulent transfer of properties to avoid tax liability.Analysis:Issue 1: Tax liability under Tamil Nadu Value Added Tax Act, 2006The case involved a petitioner who had opted for a compounded rate of tax under Section 3(4) of the Tamil Nadu Value Added Tax Act, 2006, but breached the ceiling limit of Rs. 50,00,000. Consequently, the petitioner had to be regularly assessed under Section 3(2) of the Act. The total sales tax liability, including penalty, amounted to more than Rs. 2 Crores, with the petitioner failing to clear the arrears and eventually closing down the business.Issue 2: Joint and several liability of family members in businessAfter the petitioner closed down the business, his wife continued the same business in the same premises, leading the respondents to treat her business as a continuation of the petitioner's business. The respondents imposed joint and several liability on the wife for the tax arrears left unpaid by the petitioner.Issue 3: Continuation of business by family member to avoid tax liabilityThe respondents contended that the wife's business was essentially a continuation of the petitioner's business, suggesting that the petitioner transferred properties to his wife to evade tax liability. The assessing officer highlighted the transfer of closing stock and machinery to the wife's business, indicating a strong continuation of the business through her.Issue 4: Fraudulent transfer of properties to avoid tax liabilityThe respondents argued that the petitioner made a fraudulent transfer of properties to his wife to avoid tax liability. The court directed the wife to pay the value of the closing stock and assets left in her custody to the Department, while exempting properties purchased by her before 1981-1984 from liability.In conclusion, the court quashed the impugned order and directed the assessing authority to recover the sales tax arrears from the wife in accordance with the undertaking provided. The judgment highlighted the importance of fair conduct in tax matters and addressed the issue of joint and several liability in family businesses to prevent tax evasion.