2025 (1) TMI 1429 - HC - GST

Charitable trust operating marriage hall liable for GST penalties after deliberate tax evasion under Section 74

M/s. Annai Angammal Arakkattalai (Pre Mahal), Versus The Joint Commissioner or GST (Appeals), Coimbatore, The Assistant Commissioner of GST & Central Excise, Karur Division.

The Madras HC dismissed a petition by a charitable trust operating a marriage hall challenging GST liability for services from July 2017 to January 2020. ... Liability of petitioner, a charitable trust operating a marriage hall, to pay GST on the services rendered from July 2017 to January 2020 - HELD THAT:- The entire claim against the petitioner had arisen of its own failure to register itself under the GST Act as required under law. Only pursuant thereto, 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. This 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. A perusal of the orders in original, as affirmed by the Appellate Authority would 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. 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 by this Court. Petition dismissed. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment are: Whether the petitioner, a charitable trust operating a marriage hall, was liable to pay GST on the services rendered from July 2017 to January 2020. Whether the petitioner was entitled to compute GST liability on a cum-tax basis under Rule 35 of the CGST Rules, 2017. Whether the invocation of Section 74(1) of the CGST Act, 2017, which deals with suppression of facts or willful misstatement, was justified in demanding tax, interest, and penalties from the petitioner. Whether the penalties imposed under Section 122(2)(b) of the CGST Act, 2017, were applicable to the petitioner.ISSUE-WISE DETAILED ANALYSIS1. Liability to Pay GSTThe legal framework under Section 22(1) of the CGST Act, 2017, mandates registration for entities engaged in taxable activities. The petitioner, operating a marriage hall, was found to have been rendering taxable services without GST registration from July 2017 to January 2020. The Court noted that the petitioner only registered for GST on February 14, 2020, following an investigation initiated by the GST Department. The Court interpreted this delayed registration as an attempt to evade tax liability, thus justifying the demand for GST payment.2. Cum-Tax Basis ComputationThe petitioner argued for the application of the cum-tax basis under Rule 35 of the CGST Rules, which allows for tax computation inclusive of the tax amount. However, the Court found that the petitioner did not provide sufficient evidence to prove that the amounts collected were inclusive of taxes. Furthermore, the petitioner failed to demonstrate any formal agreements with clients that would support a cum-tax valuation. As such, the Court upheld the rejection of the cum-tax benefit by the authorities.3. Invocation of Section 74(1) of the CGST ActSection 74(1) pertains to cases of tax evasion through fraud, willful misstatement, or suppression of facts. The Court agreed with the respondents that the petitioner's failure to register and pay GST, coupled with the issuance of donation receipts instead of tax invoices, indicated willful suppression of facts. The Court concluded that the invocation of Section 74(1) was appropriate, as the petitioner's actions constituted an attempt to evade tax.4. Applicability of Penalties under Section 122(2)(b)The petitioner contended that penalties under Section 122(2)(b) should not apply, arguing that they were not registered at the time of the GST Department's visit. The Court, however, found that the petitioner's non-registration and subsequent actions fell within the scope of Section 122(2)(b), which prescribes penalties for willful misstatement or suppression of facts. The Court upheld the imposition of penalties equal to the tax due, as prescribed by the law.SIGNIFICANT HOLDINGSThe Court held that the petitioner's failure to register and pay GST from July 2017 to January 2020 constituted a deliberate attempt to evade tax liability. The Court emphasized the following principles: Entities engaged in taxable activities must register under the GST Act and comply with tax obligations from the date of applicability. The cum-tax basis for GST computation requires clear evidence of tax-inclusive agreements with clients, which the petitioner failed to provide. Section 74(1) of the CGST Act is applicable in cases of willful suppression or misstatement, justifying the demand for unpaid taxes, interest, and penalties. Penalties under Section 122(2)(b) are applicable for non-compliance with registration and tax payment obligations, particularly in cases involving fraudulent conduct.The Court dismissed the writ petition, affirming the decisions of both the Original and Appellate Authorities, and concluded that the petitioner was liable for the GST, interest, and penalties as determined by the authorities. The Court found no grounds for interference with the orders in original and appeal, thus upholding the actions taken by the GST Department.