Post-Inspection GST Registration and Payment of Tax not “Voluntary”: Madras HC [Read Order]

In a recent decision, the Madras High Court Single Bench of Justice K Kumaresh Babu held that the act of taking a Goods and Services Tax (GST) registration and paying tax dues after an inspection cannot be termed voluntary, upholding the imposition of penalty on the GST taxpayer.

The writ petition was filed challenging order demanding the petitioner to pay GST liability along with interest and full penalty for GST liability.

Joseph Prabhakar, counsel for the petitioner submits that the petitioner is the charitable trust having registered office at Karur. Under the said trust petitioner runs a marriage hall.  He contended that the CGST department preventive unit visited the marriage hall 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.

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He submitted that 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. He submits that the total value arrived by the second respondent includes advance, reimbursable amount and GST.

He contended that the second respondent 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.

He further submitted that against the order in original, the petitioner preferred appeal before the first respondent. The petitioner contends that tax element is included in the total value of taxable supply and petitioner is entitled to arrive at GST liability applying cum tax basis under Rule 35 of CGST Rules 2017.

Further, it was contended that no penalty shall be levied since the petitioner already discharged full tax liability as per Section 73(8) of the Act even before the initiation of proceedings.

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The counsel further contended that on knowing that the petitioner is a supplier of service attracting GST liability forthwith registered on 14.02.2020 under GST Act, 2017. He further submits that non registration is neither willful or wanton.

He further contended that the judgments relied upon by the first respondent in order in Appeal are inapplicable to the case of the petitioner since the petitioner was cooperating with the respondents. Further, he submits that the petitioner admitted the total value only in order to buy peace.

The petitioner engaged another person to provide service and paid them. Hence, the total value of receipt is not reliable. He expostulates that the second respondent would not have issued notice under Section 73(1) when tax liability and penalty is paid or otherwise the second respondent would have issued notice only for the shortfall amount.

Countering the arguments of the petitioner, Mr. R.Gowri Shankar, learned counsel for the respondents submitted that the petitioner was rendering taxable activities such as renting of marriage halls and other related taxable supply. Based on specific intelligence, an investigation was caused in the petitioner premises on 23.01.2020 by the Preventive Unit. Thereby it is found that the petitioner neither registered with the GST Department nor discharged the GST liability.

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Further, he submitted that based on incriminating documents and depositions of the petitioner and few clients, the GST liability was arrived at to the tune of Rs.69,54,554/- for the period July, 2017 to January, 2020. Then the petitioner registered with the GST department w.e.f. 14.02.2020 i.e. approx. more than 20 days from the date of initiation of department proceedings/ investigation. Thereafter, the petitioner computed GST liability on cum-tax basis and discharged GST liability of Rs.58,93,702/- and penalty a sum of Rs.8,84,056/- on 03.08.2020.

He contended that the petitioner had received huge amounts of rents without obtaining GST registration, not paid GST, not filed statutory GST returns during July, 2017 to January, 2020 and hence cum-tax benefit was not extendable for the petitioner.

Particularly, in this case there is a willful mis-declaration and suppression of facts and hence the benefit of cum-tax benefit cannot be extended to the petitioner and he relied upon judgments to support his contentions.

He further contended that the petitioner gave donation receipts for the amount they received for their service and not provided receipt for all other services clearly substantiating that the petitioner with willful intention suppressed the fact and evaded tax payment. He contended that the electricity supply for renting premises is a composite supply and therefore, the rate of principal supply on renting of immovable property would be applicable. Further, it is submitted that for the reason of fraud or any willful misstatement or suppression of facts to evade tax occurred as per Section 122(2)(b) of CGST Act, penalty shall be equal to ten thousand rupees or the tax due from such person, whichever is higher.

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Hence, the petitioner was imposed with their tax liability amount as penalty. By contending the above said reasons, the respondents submitted that the order-in-Original and order-in-Appeal are good in law and does not require any interference of this court, in the prayer to dismiss the writ petition.

The bench noted that, “The entire claim against the petitioner had arisen from 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 affected 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.”

It was remarked that, “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.”

Observing that, “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 have 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”, the Madras High Court bench dismissed the writ petition.

To Read the full text of the Order CLICK HERE

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