Entities Evading Tax Payment Are Liable To Be Punished Under Criminal Charges With Penalties: Madras High Court

The Madras High Court, while analysing the growing trend of tax evasion, has stated that companies, firms, or entities that evade tax payments are liable to be punished under criminal charges with substantial penalties.

The division bench of Justice S. Vaidyanathan and Justice C. Saravanan has observed that the hotel business is the fastest-growing one in the world. Despite the growth, hotel and restaurant owners show no desire to pay taxes meant for the public, and a few hotels not only evade taxes but also pose a health risk to the public by intentionally degrading food quality by replacing food substances with undeclared alternative components.

"It is saddening to note that tax evasion has been mushrooming in our state and country day by day, which is purely illegal, and such evasion includes hiding true income and portraying false income, not reporting cash flow, etc.," the court said, expressing its dismay.

The petitioner has been in the hotel business for several years. For the assessment year 1995-1996, a total taxable sales turnover of Rs. 52,39,203 and Rs. 12,064 was shown by way of returns in respect of Tirupur Sree Annapoorna Hotel and Sree Annapoorna Sweets as per Section 3(1) of the TNGST Act, 1959. The respondent, on the other hand, had rejected the calculation on the grounds that the Registration Certificate applied for by Annapoorna Sweets, a sister concern of Tirupur Sree Annapoorna Hotel, was not accepted for registration. The tribunal has upheld the joint assessment of taxable turnover for the hotel and the sweet shop, totalling Rs. 66.60 lahks and Rs. 14.35 lakhs, respectively, for the years 1995-1996.

The petitioner challenged the order passed by the Tamil Nadu Sales Tax Appellate Tribunal.

The petitioner contended that the respondent has lost sight of the fact that there are separate books of accounts being maintained in the name of Sri Annapoorna Sweet Stall. Hence, the observation made by the tribunal that a fictitious firm was created in order to evade payment of taxes has no legs to stand on.

The department contended that the Tribunal rightly came to the conclusion that Tirupur Sree Annapoorna Hotel and Sree Annapoorna Sweets are single entities on the reasoning that both firms are situated in the same premises and there cannot be two different rents for the same premises with two different rent agreements and payments to the owner of the building.

The court held that taxes are the main source of income for the government, which can then concentrate on the welfare of the people and invest the money in various development projects. The firms, which pay taxes equally, find ways and means not to pay them, as does the petitioner herein, on account of which our state or country has been facing massive problems.

The court held that the petitioner deserves no leniency as the tribunal has rightly analysed the evidence on record and restored the findings of the Original Authority.

Case Title: M/s.Tirupur Sree Annapoorna Versus Tamil Nadu Sales Tax Appellate

Citation: 2023 LiveLaw (Mad) 3

Case No: W.P.Nos.4303 and 4304 of 2008

Date: 21.12.2022

Counsel For Petitioner: Advocate R.Hemalatha

Counsel For Respondent: Govt. Advocate V. Prashanth Kiran

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