When technicalities help you evade tax.

From Amala Paul to Fahadh why luxury car owners go to Puducherry to register vehicles
news Tax evasion Thursday, November 02, 2017 - 18:27

What’s common between Amala Paul and Fahadh Faasil?

Apart from being successful actors, both of them own luxury cars registered in Puducherry despite spending most of their time in their Kerala homes.

Actor Amala Paul who is equally popular for her roles in Tamil,  Malayam and Telugu cinema bought her Mercedes S class car which costs more than a crore from a dealer named Trans Car based in Chennai on August 4. The car was registered in Puducherry on August 9. Amala paid only Rs 1.75 lakh as tax for this purchase.

She has been accused of evading tax in the tune of Rs 20 lakh by registering the car with an address belonging to an engineering student who has denied knowing her.

Even Puducherry Lieutenant Governor Kiran Bedi has reacted to this development, and asked senior officials in the Transport Department and police officials to take action.

“I have directed the Transport Secretary, Transport Commissioner and SSP to take it up as a white collar crime,” Bedi told reporters on Monday.

Another investigative report by Mathrubhumi News, said even actor Fahadh Faasil’s Mercedes Benz E Class, costing Rs 70 lakhs, is also registered in Puducherry. He had paid only Rs 1.5 lakh as tax, as opposed to the Rs 14 lakh he would have had to pay had he registered his vehicle in Kerala.

Interestingly, the report said that the address given by the actor is a rented apartment occupied by a family unaware of the development.

Not only actors, well-known businessmen and politicians are also known to use this practice to evade taxes.

Karat Fazil, the Koduvally municipality councillor has been given a notice for his Mini Cooper which was used by CPI(M) state secretary Kodiyeri Balakrishnan for the party’s Jana Jagratha Yatra. Even Suresh Gopi, the BJP-nominated Rajya Sabha MP has an Audi Q7  with a PY registration and was served a notice for the same.  

So why do car owners go to Puducherry for registration?

"It is done to evade taxes using loopholes in the law," says a Chennai based auditor, who does not wish to be named. 

Registering a luxury car in a state would mean paying anywhere from 28% to 43% as goods and services tax (with cess) based on the model and road tax between 3 and 24% depending on the state. 

In Kerala, the road tax for cars costing above Rs.20 lakh is 20%, whereas in Puducherry it is only 13.75%, claim experts. And that is not all. 

"In addition to this, there is registration tax that needs to be paid," says the auditor. And it is this tax that is kept to a minimum in Puducherry. "So in order to reduce the final amount you pay to get your car on the road, people flock to union territories," she adds. 

According to reports, high value cars attract almost 15 per cent tax over the purchase value in the states whereas in Union Territories like Puducherry it’s less than one per cent. "Why will people pay additional taxes if they can help it?" asks the auditor. 

Moreover, to register a vehicle in Puducherry one need not have a permanent address there. The Registration Book reportedly features both temporary and permanent address of the vehicle owner. But in the states, vehicles cannot be registered unless the person's residential address is in the city where the vehicle is to be registered.

The Puducherry police, who conducted an investigation into the Amala Paul case, told TNM on Thursday, that there is no criminality as far as her actions are concerned. "We looked into the matter and she has a rented home here for which she is paying money regularly. She had a notary who has done due diligence. Technically, her actions are not unlawful," says SP Rajiv Ranjan. 

'State losing out on taxes'

Kiran Bedi however disagrees with this argument. The L-G termed the actor's actions as dishonest concealment.

“It has led to loss of revenue to Kerala and the Puducherry Transport Department authorities state that they know nothing about it... This must stop,” the L-G told the media.

Acknowledging that this might have been going on for a while, Bedi said 'whether it caused loss of revenue to Puducherry or another State, it was a revenue loss to the country'. She alleged that the practice corrupted the systems in place. More than revenue loss, forgery, impersonation and cheating were issues that arose when such attempts at tax evasion are made, she claimed. 

And legal experts agree with the constitutional authority. 

"While the police may claim that there are no issues as far as this recent case is concerned, if false affidavits are given, it is a matter of perjury," says Madras High Court lawyer Sudha Ramalingam. Perjury is the offence of willfully telling an untruth or making a misrepresentation under oath.

"The RTO will not have the mechanism or the resources to check the truth behind every affidavit and address proof submitted. So authorities have to come up with a solution to this," she adds. 

Puducherry not ready to confront issue

The Puducherry government however, seems far from ready to put an end to this practice of tax evasion. Minister for Transport M.O.H.F. Shahjahan not only denied charges of irregularities in the registration of luxury cars owned by actors Amala Paul and Fahad Fazil but he also indirectly asked the LG to refrain from speaking against the existing low tax structure in the UT. 

“Everything has been done in accordance with provisions of the Act. The government was well within its rights to fix the registration fee. It is a major source of revenue for the Union Territory,” he told the media. "The territorial administration has financially benefited because of the low tax structure," he added. 

Lack of uniform practices

According to the Central Motor Vehicles Act, if a vehicle is kept in another state for over six months, then the owner must get a new registration from the state it is being used and parked in. A no objection certificate will also have to be obtained from the UT/state where the vehicle was originally registered. 

But the problem here is every state follows a different set of rules over penalties for those who fail to register their vehicles. 

In Karnataka, for instance, if a vehicle with outside registration gets captured in the traffic monitoring cameras frequently for a period of six months then it is the owner's responsibility to prove that he is not a permanent resident who had registered his vehicle outside to evade tax.

In Tamil Nadu, temporary registration certificates are valid only for a month from the date of issue and cannot be renewed. Continued plying of vehicle leads to trouble with the police and fines. 

The Kerala Motor Vehicle Taxation Act however is reportedly liberal and does not provide for penal interest. What officials can do at best is to recover the original tax without any fines.

This, allows car owners to reportedly flout rules with impunity. 

Drives to end this common practice

Former Kerala Transport Commissioner Rishiraj SIngh had taken a drive in 2013 to address the issue and also submitted a report to the state government. But the move was thwarted after Singh was transferred to a different position.   

More recently in July, 2016  the Motor Vehicles Department in Kochi had forced owners of construction equipment like road rollers, concrete mixers and forklift trucks to pay the state registration tax for the vehicles.

However, this fresh controversy has also awakened the state authority to take note of previous such violations.  

“The police will bring all luxury vehicles owned by celebrities under the scanner. We have already started the investigation. Due notice will be sent to all the celebrities who are found guilty of evading taxes,” Joint Transport Commissioner Rajeev Puthalath had told TNM on Monday.

A TOI report in February, 2016 said that this prompted the Mangaluru RTO to swing into action.  

Police in Cuddalore and Madurai, TN had also taken a drive against Puducherry registered vehicles in 2010 and 2012 for evading road taxes.

Even the Andheri Regional Transport Office had pulled up the T-Series owner Bhushan Kumar for not paying road and registration tax in Maharashtra for his Puducherry registered Maybach S500 in March.

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