The Bombay High Court quashed Rs.133.60 crore GST penalty notices against three Shemaroo Entertainment Ltd. executives, ruling Section 122(1A) of the CGST Act cannot apply retrospectively and requires proof of benefit and instigation, protecting them under Article 20(1).
MUMBAI: The Bombay High Court has set aside personal GST penalty notices totaling Rs. 133.60 crore each that had been issued to three Shemaroo executives.
The Court clarified that while Section 122(1A) of CGST Act employs the expression “any person,” it cannot be interpreted in isolation and must be harmonised with Section 122(1), which specifically concerns a “taxable person.” To impose a penalty under Section 122(1A), authorities must establish that the person not only derived benefit from the transaction but also initiated or directed it.
The Court further emphasized that Section 122(1A) became operational only from 1 January 2021. Enforcing it for transactions prior to that date would amount to retrospective imposition of a penalty, which is prohibited under Article 20(1) of the Constitution.
ALSO READ: GST Dispute| Expat Remuneration Not Subject to IGST Under RCM: Karnataka HC
Factual Backgrounds:
The petitioners Amit Manilal Haria (CFO), Hiren Uday Gada (CEO & Director), and Atul Hirji Maru (Joint Managing Director) were officers of Shemaroo Entertainment Limited. A search under Section 67(2) of the CGST Act was carried out in connection with alleged fake invoicing and wrongful availment/passing of input tax credit (ITC). The petitioners were arrested under Section 132 and subsequently granted bail.
A show-cause notice accused them of wrongful ITC availment of Rs. 70.25 crore and ineligible passing of Rs. 63.35 crore for the financial years 2017–18 to 2021–22. Separate notices proposed penalties under Section 122(1A). By an Order-in-Original, the Joint Commissioner imposed a penalty of Rs. 133.60 crore on each petitioner, amounting to over Rs. 400 crore in total. The petitioners moved the High Court under Article 226.
Issue:
- Whether company officials who are not “taxable persons” can be penalised under the CGST Act?
- Whether the provision may be applied retrospectively to periods before 1 January 2021?
High Court ruling:
The Court allowed the writ petitions and annulled the show-cause notices and the Order-in-Original insofar as they pertained to the petitioners.
The Court observed that although Section 122(1A) uses the phrase “any person,” it must be read together with Section 122(1), which refers to a “taxable person.” For a penalty under Section 122(1A) to apply, it must be demonstrated that the individual both retained the benefit of the transaction and that the transaction occurred at his instance. Those essential jurisdictional facts were not established against these petitioners, who were employees and were not shown to have personally gained any benefit.
The Court relied on its earlier decision in Shantanu Sanjay Hundekari v. Union of India, in which similar penalties on employees were set aside. The Supreme Court dismissed the Special Leave Petition against that judgment in Union of India v. Shantanu Sanjay Hundekari, leaving the legal question open while maintaining the relief granted.
The Court further noted that Section 122(1A) came into effect only on 1 January 2021. Applying it to earlier periods would amount to retrospective penalization, contravening Article 20(1) of the Constitution. The penalties were therefore quashed on the ground that the impugned action lacked jurisdiction.
FOLLOW US FOR MORE LEGAL UPDATES ON YOUTUBE