Introduction
The Goods and Services Tax (GST) regime in India mandates that every person supplying taxable goods or services must register under GST when they cross the prescribed threshold limit. However, instances of non-registration and tax evasion still surface. A recent Madras High Court judgment (2025) has brought crucial insights into the implications of non-registration, tax evasion, and penalties under Section 74 of the CGST Act, 2017. This blog post will analyze this case and its broader implications on GST compliance.
Background of the Case
The case was filed by Annai Angammal Arakkattalai (Pre Mahal), a charitable trust operating a marriage hall, against the orders passed by the GST authorities demanding tax, interest, and penalties for non-registration under GST and suppression of taxable receipts.
Key Facts:
- The petitioner operated a marriage hall and collected substantial amounts as rentals from July 2017 to January 2020.
- They failed to obtain GST registration during this period despite providing taxable services.
- Following an inspection by GST authorities in January 2020, it was discovered that the trust had collected over ₹3.86 crores as rent but neither registered under GST nor paid tax.
- The petitioner registered under GST only on 14.02.2020, after inspection.
- They subsequently paid ₹58.93 lakhs as GST and ₹8.84 lakhs as penalty but claimed cum-tax benefit under Rule 35 of CGST Rules, seeking to reduce their tax liability.
- Authorities rejected the cum-tax claim and imposed full tax liability and penalty under Section 74 of CGST Act, citing willful suppression and fraudulent behavior.
Issues Involved
- Whether non-registration under GST and subsequent payment of tax amounts to voluntary compliance or suppression of facts.
- Whether cum-tax benefit under Rule 35 of CGST Rules can be claimed by an unregistered entity.
- Applicability of penalty under Section 74 for non-registration and tax evasion.
Petitioner’s Arguments
- The trust argued that their failure to register was neither willful nor intentional.
- Claimed they had cooperated with GST authorities, submitted all documents, and paid taxes and penalties voluntarily.
- Contended that receipts included GST (cum-tax basis) and thus actual liability would be lesser.
- Argued that they were a charitable trust and that part of the collections was reimbursable to others.
- Opposed invoking Section 74, arguing no fraud, willful misstatement, or suppression.
- Cited that penalty under Section 122(2)(b) applies only to registered entities, while for unregistered entities, a penalty of only ₹10,000 under Section 122(1) would be applicable.
Respondents’ (GST Authorities’) Stand
- Asserted that the trust willfully suppressed taxable supplies by issuing donation receipts instead of proper invoices.
- Highlighted that the trust collected rents and engaged in taxable supplies since July 2017 but never registered or paid GST.
- Rejected cum-tax claim since the trust was unregistered and did not include GST in their receipts.
- Claimed that registration after inspection and payment of part liabilities cannot be termed voluntary compliance but rather an attempt to escape consequences.
- Imposed equal penalty to tax evaded under Section 74, citing deliberate evasion.
Court’s Observations and Final Judgment
Key Observations:
- The trust operated a marriage hall, a taxable service, and failed to register despite crossing the threshold.
- The trust only paid tax after being caught, making it non-voluntary.
- Conduct involved deliberate evasion of GST, and issuing donation receipts to avoid tax indicated clear suppression of facts.
- Rejected the claim that payments were voluntary or to buy peace, stating that tax payments were made only to avoid further penalties.
- Cum-tax benefit under Rule 35 was denied because GST was not included in the receipts, and no evidence proved otherwise.
Judgment:
- The Madras High Court upheld the orders of the GST authorities.
- Dismissed the writ petition, confirming full GST liability along with interest and equal penalty under Section 74.
- Held that application of Section 74 was justified due to willful suppression and fraudulent evasion.
- Clarified that penalty provisions under Section 122(2)(b) were rightly applied, considering the serious nature of the offense.
Key Legal Takeaways
- Non-registration under GST and taxable transactions attract full tax and penalties, even if taxes are later paid voluntarily.
- Cum-tax benefit under Rule 35 is not available to unregistered persons unless invoices show GST-inclusive pricing.
- Willful suppression of facts and tax evasion attract penalties under Section 74, including an amount equal to the tax evaded.
- Charitable trust status does not exempt taxable activities like marriage hall rentals, unless specific exemptions apply.
- Penalty under Section 122(2)(b) applies even to unregistered entities if engaged in taxable supply and evasion.
Practical Implications for Taxpayers
- Immediate registration under GST is mandatory once threshold limits are crossed, regardless of the nature of the entity (trust, society, individual).
- Avoid suppression of receipts and issuing informal receipts (like donation receipts) to circumvent tax.
- Voluntary registration and tax payment before detection may offer relief, but once detected, full penal provisions apply.
- Maintaining transparent accounting and issuing GST-compliant invoices is crucial.
- GST liability includes not just tax but also interest and penalties, which could double the liability.
Conclusion
This landmark judgment reiterates the strictness of GST compliance in India. All taxable persons must ensure timely registration, correct invoicing, and full compliance to avoid heavy penalties. Trusts and societies engaging in commercial activities cannot claim ignorance or charitable status as a defense against GST obligations.
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