Bombay High Court
Amit Manilal Haria And Ors vs Joint Commissioner Cgst And Central … on 25 February, 2026
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
Digitally
signed by
PRASHANT
PRASHANT VILAS RANE
2026:BHC-AS:9556-DB
VILAS
RANE Date:
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2026.02.25
11:43:28
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 5001 OF 2025
1. Amit Manilal Haria
2. Hiren Uday Gada
3. Atul Hirji Maru ...Petitioners
VS
1. The Joint Commissioner, CGST & Central Excise.
2. The Superintendent, CGST & CX, Range-V, Division V,
Mumbai East Commissionerate. ...Respondents
__________
Mr. Abhishek A. Rastogi with Pooja M. Rastogi, Meenal Songire, Aarya More, for
Petitioners.
Mr. Ram Ochani with Sangeeta Yadav, for Respondent Nos.1 and 2.
__________
CORAM: G. S. KULKARNI &
AARTI SATHE, JJ.
RESERVED ON : 27 JANUARY 2026.
PRONOUNCED ON : 25 FEBRUARY 2026
____________
JUDGMENT (Per G. S. Kulkarni, J.).
1. This petition under Article 226 of the Constitution of India challenges an
order-in-original dated 1 February 2025 whereby the show cause notice dated 2
August 2024 issued to the petitioners by the Joint Commissioner (AE), CGST &
C.Ex. Mumbai East, in the proceedings of one ‘M/s. Shemaroo Entertainment
Limited’, has been confirmed not only against the said entity but also against the
petitioners who are the Chief Financial Officer, Chief Executive Officer and
Director and Joint Managing Director respectively, being the employees of the
said entity, to the extent that the petitioners have been ordered with a penalty of
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Rs.1,33,60,60,889/- each. The operative portion of the impugned order passed
against the petitioners is required to be noted which reads thus:
“(F). In respect of Shri, Atul Hirji Mara, Joint Managing Director; Shri, Hiren
Gada, Chief Executive Officer, and Shri, Amit Haria, Chief Financial Officer of M/s.
Shemaroo Entertainment Limited
(i) I impose penalty amounting to Rs. 1,33,60,60,889/- (Rupees One
hundred thirty three crores sixty lakh sixty thousand eight hundred and eighty
nine only) (inadmissible Input Tax Credit (ITC) availed amounting to Rs.
70,25,61,996/-(CGST of Rs. 35,12,80,998/- & SGST of Rs. 35,12,80,998/-)
and ineligible ITC passed on amounting to Rs. 63,34,98,893/- (CGST of Rs.
31,67,49,446/- & SGST of Rs. 31,67,49,446/-)) on Shri, Atul Hirji Maru,
Joint Managing Director of M/s Shemaroo Entertainment Limited of an
amount equivalent to the fake input- tax credit availed of or passed on, under
Section 122(1A) of the CGST Act, 2017 and MGST Act, 2017;
(ii) I impose penalty amounting to Rs. 1,33,60,60,889/- (Rupees One
hundred thirty three crores sixty lakh sixty thousand eight hundred and eighty
nine only) (inadmissible Input Tax Credit (ITC) availed amounting to Rs.
70,25,61,996/-(CGST of Rs. 35,12,80,998/- & SGST of Rs. 35,12,80,998/-)
and ineligible ITC passed on amounting to Rs. 63,34,98,893/- (CGST of Rs.
31,67,49,446/- & SGST of Rs. 31,67,49,446/-)) on Shri, Hiren Gada, Chief
Executive Officer of M/s Shemaroo Entertainment Limited of an amount
equivalent to the fake input tax credit availed of or passed on, under Section
122(1A) of the CGST Act, 2017 and MGST Act, 2017;
(iii) I impose penalty amounting to Rs. 1,33,60,60,889/- (Rupees One
hundred thirty three cGaramond Classicorores sixty lakh sixty thousand eight
hundred and eighty nine only) (inadmissible Input Tax Credit (ITC) availed
amounting to Rs. 70,25,61,996/-(CGST of Rs. 35,12,80,998/- & SGST of Rs.
35,12,80,998/-) and ineligible ITC passed on amounting to Rs.
63,34,98,893/- (CGST of Rs. 31,67,49,446/- & SGST of Rs.
31,67,49,446/-)) on Shri, Amit Haria, Chief Financial Officer of M/s
Shemaroo Entertainment Limited of an amount equivalent to the fake input
tax credit availed of or passed on, under Section 122(1A) of the CGST Act,
2017 and MGST Act, 2017.”
2. The facts in brief are required to be noted.
The petitioners are individuals and are the employees/officers of M/s.
Shemaroo Entertainment Ltd. (for short ‘the company’) duly incorporated under
the provisions of the Companies Act, 1956, having its principal place of business
at Marol Naka, Andheri (East), Mumbai. The genesis of the dispute appears to be
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a search action, which was initiated on 5 September 2023 in terms of
authorization issued under Section 67(2) of the Central Goods And Services Tax
Act, 2017 (for short ‘CGST Act‘) in respect of four firms namely M/s. Uttam
Movies, M/s. Mangal Entertainment, M/s. JDS Motion Pictures and M/s. JV
Media Solutions. A statement of Jhaverchand Devraj Soni, the partner and
authorized signatory of the said firms was also recorded. It is the petitioner’s case
that based on the statement of Mr. Jhaverchand Soni, the investigation was
extended to the company. The principal place of business of the company was
also searched on 5 September 2023 in terms of authorization as also a
panchanama was drawn by the respondent authorities.
3. On 6 September 2023, summonses were issued to the petitioners and
statements of the petitioners were recorded. The petitioners were also arrested
for allegedly committing offences under Section 132(1)(b) and 132(1)(c) of the
CGST Act. The petitioners were produced before the Additional Chief
Metropolitan Magistrate, 19th Court, Esplanade, Mumbai on 7 September 2023
and were granted bail. Significantly, the statements of the petitioners recorded
before the CGST authorities on 6 September 2023, were retracted on 7
September 2023 before the Court of Additional Chief Metropolitan Magistrate,
19th Court, Esplanade, Mumbai.
4. On such backdrop, various summonses were issued to the petitioners from
11 September 2023 to 12 October 2023 and further statements were recorded
from time to time. It is the petitioners’ case that on 18 September 2023, the
company deposited an amount of Rs.12,00,00,000/- under protest in Form GST
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DRC-03. An amount of Rs.2,00,00,000/- was paid in cash and the balance of
Rs.10,00,00,000/- was paid through the Electronic Credit Ledger.
5. On 5 October 2023, the company filed a representation cum letter
submitting various documents relating to purchase and sale of rights undertaken
by the Company in the course of its business. The company also denied all the
allegations of fake invoicing and circular trading levelled against the Company.
On 5 March 2024, a prosecution was lodged against the company and the
petitioners (Registration No.1900032/2024) under the provisions of Section
132(1), Section 132(5) and Section 137 of the CGST Act.
6. On 8 March 2024, the company filed a letter before the Principal
Commissioner and Chief Commissioner, CGST and Central Excise, Mumbai –
North requesting for issuance of show cause notice pursuant to the investigations
conducted against the company and its officials.
7. On 11 June 2024, an intimation of tax ascertained as being payable under
Section 74(5) of the CGST Act, was issued to the company in Form GST DRC-
01A. The company filed its reply to the intimation issued in Form GST DRC-
01A on 19 June 2024 thereby not accepting the alleged tax and penalty liability
proposed to be recovered from the Company.
8. On 21 June 2024, a Criminal Revision Application No.943 of 2023 filed
by the Department seeking revision of order dated 7 September 2023 passed by
the Additional Chief Metropolitan Magistrate, 19 th Court, Esplanade, Mumbai,
which came to be dismissed by the learned Additional Sessions Judge, Greater
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Mumbai, Mazgaon.
9. On such backdrop, on 2 August 2024, a separate show cause notice in
Form GST DRC-01 for the Financial Year 2017-2018 to Financial Year 2021-
2022 was issued to the company, in which it was inter alia alleged that the
company had availed and passed on ineligible Input Tax Credit (ITC) of
Rs.70.25 crores and Rs.63.35 crores, by fake invoices without actual supply,
violating Section 16(2)(b) of the CGST Act and the proposed penalties under
Section 122. On 2 August 2024, show cause notices which were common to the
notices issued to the company, were separately issued to the petitioners proposing
imposition of penalty under Section 122(1A) of the CGST Act for the Financial
Year 2017-2018 to Financial Year 2021-2022. The show cause notices were
contested by the company by its reply dated 24 September 2024. The
petitioners also filed their replies to the show cause notices on 26 September
2024 contending that no penalty under Section 122(1A) was imposable in view
of the decision of this Court in Shantanu Sanjay Hundekari vs. Union of India 1
against which a Special Leave Petition was dismissed by the Supreme Court in
Union of India vs. Shantanu Sanjay Hundekari2.
10. On 2 December 2024, a personal hearing was granted on the show cause
notices issued to the company, as also issued to the petitioners. Consequent
thereto on 1 February 2025 respondent No.1 has passed an impugned Order in
Original imposing penalties of Rs.133,60,60,889/- each on the petitioners. Thus,
1 2024(89) G.S.T.L. 62 (Bom.)
2 (2025)27 Centax 14 (S.C.)
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the impugned order to the extent it relates to the petitioners, confirmed the
penalties of Rs.133.60 crores each under Section 122(1A) of the CGST Act and
MGST Act which is the subject matter of challenge in the present Writ Petition.
11. It is the case of the petitioners that this penalty equals the alleged wrongful
ITC availed of Rs.70.25 crores and passed on of Rs.63.35 crores by the company,
and thus the cumulative penalty as imposed on the petitioners comes to about
Rs.400,81,82,667/- (400.81 crs). Respondent No. 2 issued an electronic
summary of the impugned order in Form DRC-07 dated 5 February 2025. It is
also the petitioners’ contention that on 6 March 2025, the bail order dated 7
September 2023 passed in the case of the petitioners, was modified and the
conditions for grant of bail were relaxed permitting the petitioners to travel
abroad for a period of one year from the date of the said order. It is on these
circumstances, this petition is filed praying for the following substantive reliefs:-
“(a) Declare that the Impugned Order dated 01.02.2025 [Exhibit- ‘A’] to the
extent it has been issued to the Petitioners is without the authority of law, is
without jurisdiction and is unsustainable in law;
(b) Declare that the Impugned Order dated 01.02.2025 issued and uploaded on
05.02.2025 [Exhibit- ‘A’] to the extent it has been passed by the Respondent No.
1 in respect of the Petitioners is bad in law, is void ab initio, and, is ultra vires the
scheme of Section 122 of the CGST Act read with the MGST Act;
(c) Issue a Writ of Certiorari or any other appropriate writ, order, or direction in
the nature of Certiorari under Article 226 of the Constitution of India calling for
all papers, records, and proceedings leading to the passing of the Impugned Order
dated 01.02.2025 [Exhibit-‘A’] and, after examining their validity and propriety,
quash and set aside the Impugned Order dated 01.02.2025 [Exhibit- ‘A’] passed
by the Respondent No.1;
(d) declare that the Impugned Order dated 01.02.2025 [Exhibit- ‘A’] which
aggregates multiple assessment periods, is fundamentally flawed as also ultra vires
the statutory provisions governing assessment specifically Sections 2(11) and 59
of the CGST Act;
(e) this Hon’ble Court be pleased to issue a writ of mandamus or a writ in the
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WP5001-25.DOCArticle 226 of the Constitution of India ordering and directing the Respondents
to rescind and/or withdraw the Impugned Order dated 01.02.2025 [Exhibit-‘A’]
to the extent it has been passed against the Petitioners;
(f) that pending the hearing and final disposal of this Petition, the Respondents by
themselves, their officers, subordinates, servants and agents be directed:
i. Not to act on or in consequence of the Impugned Order dated
01.02.2025 [Exhibit ‘A’] to the extent it has been passed against the
Petitioners;
ii. Not to take any coercive steps in any manner, in consequence of, or in
relation to the Impugned Order dated 01.02.2025 [Exhibit- ‘A’] to the
extent it has been passed against the Petitioners;”
12. A reply affidavit on behalf of the respondents is filed of Shri.Rajanikant I.
Pandey, Assistant Commissioner of CGST & Central Excise, Mumbai East. It is
contended that the impugned order does not travel beyond the period for which
the show cause notice was issued, and that a typographical error in the Summary
of Order and the period mentioned in the Summary of Order was amended by
way of issuance of Corrigendum to the order dated 22 May 2025 and dated 3
June 2025, and also copies of the corrigendum were provided to the petitioners.
Insofar as the petitioners’ contention on the jurisdictional issue of applicability of
Section 122(1A) of the CGST Act is concerned, it is contended that it is an
integral part of the CGST Act 2017. It is contended that on the date of issuance
of the show cause notice covering the period from July 2017 to March 2022, the
provision of Section 122(1A) of the CGST Act was in effect and for such reason
the provision of Section 122(1A) was correctly invoked in the show cause notice,
issued to the petitioners. It is next contended that by the very wording of the
provision, the provision is applicable to the petitioners. It is further contended
that in the present case, the petitioners, who are the Joint Managing Director, the
Chief Executive Officer and Director and the Chief Financial Officer are found
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responsible for causing fake financial transactions, as seen from their statements.
It is also contended that penalty can be imposed on any person under Section
122(1A) of the CGST Act, 2017, considering the definition of ‘any person’ under
Section 2(84) of the CGST Act. In such context, reliance is placed on the
decision of this Court in Bharat Parihar Vs. State of Maharashtra & Ors. 3 to
contend that even a non-taxable person can be held to be liable. The reply
affidavit further states that the petitioners are not the employees of the company,
rather by the posts held by them, they were controlling and managing the
company, and it is at their instance, a conspiracy was planned and executed and
they were responsible for playing an active role to defraud the revenue. It is next
contended that reliance on the decision of this Court in Shantanu Hundekari
(supra) as upheld by the Supreme Court, is distinguishable as in the said case the
petitioner was only an employee who could not have been fastened with the
liability. It is further contended that the CGST Act, in none of its provisions gives
any discretionary powers to the adjudicating authority to either distribute, reduce
or enhance the penalty. The CGST Act clearly provides that penalty of an
amount equivalent to the tax evaded or input tax credit availed of or passed on,
can be imposed.
13. It is next contended that the petitioners have challenged the Circular
No.171/03/2022-GST dated 6 July 2022 which itself recognizes such transaction
as revenue neutral as it does not qualify as a supply. It is contended that the
petitioners’ case that the adjudicating authority has not properly applied the
3 WRIT PETITION NO.3742 OF 2023, decision dt.30/06/2023
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proviso below this circular, is also not correct, for the reason that the intention
behind the circular is that any fake or bogus tax invoice, when issued by the
petitioners, it is accounted as a sale in their ledger which leads to receipts of funds
(income), and this is used to increase the Overdraw Facility provided by the
banks, and then it turns out into a NPA. Secondly, it is stated that any fake or
bogus tax invoice when received by the petitioner, it is accounted as a purchase in
their ledger which leads to outflow of funds /expense. The petitioners utilized the
input tax credit (ITC) of the GST paid on all such expenses. However, later with
the help of such fake /bogus ITC, the GST outward liability was discharged. It is
further contended that also fake/bogus expense reduced the total income accrued
to the petitioners, hence, the assessees paid lesser direct taxes, as the income is
artificially reduced.
14. It is next contended that there is no bar under the CGST Act, to issue
consolidated Show Cause Notices and Order-In-Original, to cover several
financial years, when the same are issued within the limitation provided under
the CGST Act and more particularly, when it is an issue within the limitation as
prescribed under Section 74(10) of the CGST Act, and for such reason the writ
petition ought not to be entertained. Also, reliance is placed on the decision of
the learned Single Judge of the Delhi High Court in Mukesh Kumar Garg vs
Union Of India & Ors.4 to contend that even in the said case the Court was
dealing with fake Input Tax Credit and such factual aspect ought not to be gone
into in the proceedings of a writ petition.
4 2025 (5) TMI 922 – DELHI HIGH COURT
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Submissions
15. Mr. Rastogi, learned Counsel for the petitioners has made the following
extensive submissions.
(i) The Petitioners are employees who are not registered under the CGST
Act in their individual capacity. As such, they are not “taxable persons”
under Section 2(107) and personal liability under Section 122(1A) is
legally unsustainable.
(ii) There is clearly a jurisdictional error in issuing the impugned show
cause notices against the petitioners who are employees of the company
and that too for recovery of any tax liability as alleged in the show cause
notices and in the impugned order. It is his submission that the
jurisdiction, in the case of the petitioners, is clearly sought to be drawn
from the provisions of Section 122(1A) of the CGST Act, which per se are
applicable only to the ‘taxable persons’ as defined under Section 2(107) of
the CGST Act and not to a ‘person’ as defined under Section 2(84) of the
CGST Act. This more particularly considering the clear contents of sub-
section (1A) of Section 122 of the CGST Act. It is, therefore, his
submission that once there was a lack of jurisdiction to issue such show
cause notice to the petitioners who are merely the employees of the
company, for proceedings to be initiated for recovery of any tax liability of
the company, the show cause notices were clearly untenable and not
maintainable against the petitioners. It is submitted that as a consequence
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thereof, the impugned order issued against the petitioners itself was
without jurisdiction. It is also Mr. Rastogi’s submission that in any event,
the impugned order, on the face of it, is disproportionate, inasmuch as it
seeks recovery of a large amount of ₹400,81,82,667/- which by no
rationale can be the subject matter of any legal recovery from the
petitioners. It is hence submitted that on the ground of proportionality
and in the absence of any sanctity to proportionality, the impugned order
is required to be interfered with. This apart, from the contention that a
penalty can be imposed only on a person who is a taxable person, and not
on a person who is not taxable.
(iii) The petitioners’ objection is to the applicability of the provision of
Section 122(1A). It is submitted that the Petitioners are challenging the
Impugned Order-in-Original dated 01.02.2025 issued by Respondent
No.1 for the period July 2017 to July 2023, whereby penalties of
₹133,60,60,889/- each have been imposed upon the Petitioners under
Section 122(1A) of the CGSTax Act, 2017. The penalty has been imposed
on the basis of alleged wrongful availment and utilisation of input tax
credit of ₹70,25,61,996/- and alleged erroneous passing on of input tax
credit of ₹63,34,98,893/-, resulting in a total cumulative penalty of
₹400,81,82,667/- imposed upon the Petitioners. In such context, it is
submitted that Section 122(1A) was brought into force prospectively with
effect from 1st January 2021 vide Notification No. 92/2020-Central Tax
dated 22nd December 2020 whereas the impugned order seeks to impose
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penalties under Section 122(1A) for a period prior to 1st January 2021. It
is the petitioners case that such retrospective application of a penal
provision was impermissible apart from the same being unconstitutional
and barred under Article 20(1) of the Constitution of India. It is
submitted that no person can be penalised under a law which was not in
force at the time of the alleged act and, therefore, the invocation of Section
122(1A) for the period prior to 1st January 2021 was ultra vires and non
est in law.
(iv) The imposition of personal penalties upon the Petitioners, who are
employees cannot be sustained as they are unimaginably excessive and
disproportionate. The underlying disputed tax liability is only around ₹70
crore, whereas personal penalties of approximately ₹400 crore have been
imposed upon the Petitioners. It is submitted that the Petitioners have not
derived or retained any personal financial benefit from the transactions in
question and, in these circumstances, the penalties imposed are legally
unsustainable.
(v) This Court, in Shantanu Sanjay Hundekari v. Union of India , has held
that the imposition of exorbitant personal penalties on employees for tax
disputes is impermissible. The failure of the Respondents to apply the said
binding precedent is a direct affront to the rule of law and the principle of
judicial discipline. Such decision has been confirmed by the Supreme
Court.
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(vi) The operation of Section 122(1A) is derivative and conditional. In the
absence of a valid determination under Section 122(1)(ii), including
issuance of invoices without supply, penalties under Section 122(1A)
cannot be sustained. The impugned order does not establish this
precondition and, therefore, the penalty imposed is void ab initio.
(vii) The Show Cause Notices cover the period from July 2017 to March
2022, whereas the impugned order seeks to penalise the Petitioners for an
extended period up to July 2023. Such expansion of the period without a
revised notice or hearing is a violation of the principles of natural justice
and is ultra vires the show cause jurisdiction.
16. Lastly, the impugned orders are vitiated by failure to consider the
judgment in Shantanu Sanjay Hundekari, which governs the issues involved in
the present case.
17. On the other hand, Mr. Ochani, learned Counsel for the respondents has
limited submissions which are not different from what has been set out in the
reply affidavit to which we have made extensive reference hereinabove. He
submits that the impugned order-in-original is passed validly exercising the
jurisdiction. It is also his submission that the petitioners need to take recourse to
the alternative remedy as available to them under law. It is accordingly submitted
that the Writ Petition needs to be dismissed.
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Analysis
18. We have heard learned Counsel for the parties, we have also perused the
record with their assistance. The primary issue which falls for our consideration is
‘whether the impugned show cause notices and the order passed i.e. the
impugned Order-in-Original can be said to be bad, illegal and invalid for want of
jurisdiction, considering the provisions of Section 122(1A) of the CGST Act,
2017.
19. Section 122 of the CGST Act falls under Chapter XIX which provides for
‘Offences and Penalties’. Section 122 provides for ‘Penalty for certain offences’.
To appreciate as to whether the basic jurisdictional requirements were present in
respondent No.2 exercising authority against the petitioners who are employees
of the company, at the outset, it would be imperative to extract Section 122
which reads thus:
“Section 122. Penalty for certain offences.
(1) Where a taxable person who—
(i) supplies any goods or services or both without issue of any invoice or
issues an incorrect or false invoice with regard to any such supply;
(ii) issues any invoice or bill without supply of goods or services or both in
violation of the provisions of this Act or the rules made thereunder;
(iii) collects any amount as tax but fails to pay the same to the Government
beyond a period of three months from the date on which such payment
becomes due;
(iv) collects any tax in contravention of the provisions of this Act but fails to
pay the same to the Government beyond a period of three months from the
date on which such payment becomes due;
(v) fails to deduct the tax in accordance with the provisions of sub-section (1)
of section 51, or deducts an amount which is less than the amount required to
be deducted under the said sub-section, or where he fails to pay to the
Government under sub-section (2) thereof, the amount deducted as tax;
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(vi) fails to collect tax in accordance with the provisions of sub-section (1) of
section 52, or collects an amount which is less than the amount required to be
collected under the said sub-section or where he fails to pay to the
Government the amount collected as tax under sub-section (3) of section 52;
(vii) takes or utilises input tax credit without actual receipt of goods or
services or both either fully or partially, in contravention of the provisions of
this Act or the rules made thereunder;
(viii) fraudulently obtains refund of tax under this Act;
(ix) takes or distributes input tax credit in contravention of section 20, or the
rules made thereunder;
(x) falsifies or substitutes financial records or produces fake accounts or
documents or furnishes any false information or return with an intention to
evade payment of tax due under this Act;
(xi) is liable to be registered under this Act but fails to obtain registration;
(xii) furnishes any false information with regard to registration particulars,
either at the time of applying for registration, or subsequently;
(xiii) obstructs or prevents any officer in discharge of his duties under this
Act;
(xiv) transports any taxable goods without the cover of documents as may be
specified in this behalf;
(xv) suppresses his turnover leading to evasion of tax under this Act;
(xvi) fails to keep, maintain or retain books of account and other documents
in accordance with the provisions of this Act or the rules made thereunder;
(xvii) fails to furnish information or documents called for by an officer in
accordance with the provisions of this Act or the rules made thereunder or
furnishes false information or documents during any proceedings under this
Act;
(xviii) supplies, transports or stores any goods which he has reasons to believe
are liable to confiscation under this Act;
(xix) issues any invoice or document by using the registration number of
another registered person;
(xx) tampers with, or destroys any material evidence or document;
(xxi) disposes of or tampers with any goods that have been detained, seized,
or attached under this Act,
shall be liable to pay a penalty of ten thousand rupees or an amount
equivalent to the tax evaded or the tax not deducted under section 51 or short
deducted or deducted but not paid to the Government or tax not collected
under section 52 or short collected or collected but not paid to the
Government or input tax credit availed of or passed on or distributed
irregularly, or the refund claimed fraudulently, whichever is higher.
[(1A) Any person who retains the benefit of a transaction covered under
clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance
such transaction is conducted, shall be liable to a penalty of an amount
equivalent to the tax evaded or input tax credit availed of or passed on.]
(2) Any registered person who supplies any goods or services or both on
which any tax has not been paid or short-paid or erroneously refunded, or
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where the input tax credit has been wrongly availed or utilised,—
(a) for any reason, other than the reason of fraud or any willful misstatement
or suppression of facts to evade tax, shall be liable to a penalty of ten thousand
rupees or ten per cent. of the tax due from such person, whichever is higher;
(b) for reason of fraud or any willful misstatement or suppression of facts to
evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax
due from such person, whichever is higher.
(3) Any person who—
(a) aids or abets any of the offences specified in clauses (i) to (xxi) of sub-
section (1);
(b) acquires possession of, or in any way concerns himself in transporting,
removing, depositing, keeping, concealing, supplying, or purchasing or in any
other manner deals with any goods which he knows or has reasons to believe
are liable to confiscation under this Act or the rules made thereunder;
(c) receives or is in any way concerned with the supply of, or in any other
manner deals with any supply of services which he knows or has reasons to
believe are in contravention of any provisions of this Act or the rules made
thereunder;
(d) fails to appear before the officer of central tax, when issued with a
summons for appearance to give evidence or produce a document in an
inquiry;
(e) fails to issue invoice in accordance with the provisions of this Act or the
rules made thereunder or fails to account for an invoice in his books of
account,
shall be liable to a penalty which may extend to twenty-five thousand rupees.
[(1B) [Any electronic commerce operator, who is liable to collect tax at source
under section 52,]—
(i) allows a supply of goods or services or both through it by an unregistered
person other than a person exempted from registration by a notification
issued under this Act to make such supply;
(ii) allows an inter-State supply of goods or services or both through it by a
person who is not eligible to make such inter-State supply; or
(iii) fails to furnish the correct details in the statement to be furnished under
sub-section (4) of section 52 of any outward supply of goods effected
through it by a person exempted from obtaining registration under this Act,
shall be liable to pay a penalty of ten thousand rupees, or an amount
equivalent to the amount of tax involved had such supply been made by a
registered person other than a person paying tax under section 10, whichever
is higher.]”
(emphasis supplied)
20. We may observe that as the opening words of sub-section (1) of Section
122 of the CGST categorically uses the expression a ‘taxable person’, to whom
the said provision would be applicable. In such context, the definition of term
‘person’ as set out in Section 2(84) as also definition of term ‘taxable person’ as
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set out in Section 2(107) are required to be noted, which read thus:
“Section 2 – Definition
………
(84) “person” includes—
(a) an individual;
(b) a Hindu Undivided Family;
(c) a company;
(d) a firm;
(e) a Limited Liability Partnership;
(f) an association of persons or a body of individuals, whether incorporated or
not, in India or outside India;
(g) any corporation established by or under any Central Act, State Act or
Provincial Act or a Government company as defined in clause (45) of section 2
of the Companies Act, 2013 (18 of 2013);
(h) any body corporate incorporated by or under the laws of a country outside
India;
(i) a co-operative society registered under any law relating to co-operative
societies;
(j) a local authority;
(k) Central Government or a State Government;
(l) society as defined under the Societies Registration Act, 1860 (21 of 1860);
(m) trust; and
(n) every artificial juridical person, not falling within any of the above;
.. … … ..
(107) “taxable person” means a person who is registered or liable to be registered
under section 22 or section 24;”
21. On a plain reading of the provisions of sub-section (1) of Section 122, it is
clear that it pertains to a ‘taxable person’ as defined under Section 2(107) (supra),
who in the circumstances which may fall in sub-clauses (i) to (xxi) of Section 122
shall be liable to penalty as stipulated by such provision (supra). Thus, such
penalty becomes imposable on the taxable person as defined under Section
2(107), namely who is liable to be registered under Section 22 or Section 24 of
the CGST Act.
22. Now coming to the provisions of Section 122 sub-section (1A) (supra), it
stipulates that any person who retains the benefit of a transaction covered under
clauses (i), (ii), (vii) or clause (ix) of sub-section (1), and at whose instance such
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the tax evaded or input tax credit availed of or passed on. It is thus a two-fold
requirement, the provision envisages firstly that any person who retains the
benefit of a transaction covered under the different clauses as set out in the said
provision; secondly the provision uses the words “and” at whose instance such
transaction is conducted shall be liable for a penalty. Thus, unless such two-fold
requirement is fulfilled, it would not be possible to recognize any jurisdiction
being available, in the concerned official, to invoke the said provision.
23. Further there is another facet of sub-section (1A), namely that sub-section
(1A) is clearly applicable in the circumstances falling in clauses (i), (ii), (vii) or
clause (ix) of sub-section (1) of Section 122, i.e., necessarily to a ‘taxable person’,
firstly who supplies any goods or services or both without issue of any invoice or
issues an incorrect or false invoice with regard to any such supply; secondly,
issues any invoice or bill without supply of goods or services or both in violation
of the provisions of this Act or the rules made thereunder; thirdly, who takes or
utilises input tax credit without actual receipt of goods or services or both either
fully or partially, in contravention of the provisions of this Act or the rules made
thereunder; fourthly, who takes or distributes input tax credit in contravention of
Section 20, or the rules made thereunder. It is thus seen that the said violations
are purely attributable to a taxable person. Hence, there is substance in the
contentions as urged on behalf of the petitioners, as to how in the absence of the
petitioners being taxable persons, qua the business of the company-M/s.
Shemaroo Entertainment Ltd., the petitioners can be held liable for any penalty
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under the provisions of sub-section (1A).
24. We are of the clear opinion that the legislative intent of sub-section (1A) is
quite clear, as necessarily clauses (i), (ii), (vii) or clause (ix) of sub-section (1) are
required to be conjointly read with Section (1A), which itself stands incorporated
in the provision. Hence, the opening words of sub-section (1A) when it uses the
words “any person”, it would be required to be understood in the context of a
‘taxable person’ as sub-section (1) itself applies to a taxable person. In the absence
of such interpretation, we find it difficult as to how the provisions of clauses (i),
(ii), (vii) or clause (ix) of sub-section (1) of Section 122 can at all apply, so as to
give effect and/or in invoking/implementing the provision of sub-section (1A) of
Section 122 of the CGST Act.
25. It is clear from the facts of the case that an action was initiated against a
company namely M/s. Shemaroo Entertainment Ltd.. It appears to be not in
dispute that the petitioners who for the period in question, were the Chief
Financial Officer, Chief Executive Officer and Director & Joint Managing
Director, being employees of the company could not be held liable for a penalty
to be imposed under the provisions of Section 122(1A). In such context, we find
substance in the contention as urged on behalf of the petitioners that the decision
of this Court in Shantanu Sanjay Hundekari (supra) would become squarely
applicable. Such decision concerned the petitioners who were employees of one
M/s. Maersk Line India Pvt. Ltd. were issued the demand cum show cause notice
by the Joint Director, Director General of Goods and Services Tax Intelligence,
whereby the petitioners along with other noticees were called upon to show cause
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as to why a large penalty equivalent to the tax alleged to be evaded by M/s.
Maersk amounting to Rs.3731,00,38,326/- as detailed in the show cause notice,
be not imposed upon the petitioners inter alia applying the provisions of Section
122(1A) and Section 137 of the CGST Act, 2017 and the corresponding
provisions of the MGST Act, 2017. The Court in such context considering the
rival contentions observed that the GST Council in its 38 th meeting held on 18
December 2019 had proposed insertion of sub-section (1A) in Section 122, to
specifically address the cases of fake invoices, and accordingly, with effect from 1
January, 2021. Accordingly, the legislature has introduced the penal provision
being sub-section (1A) in Section 122 of the CGST Act, by an amendment
brought about by the Finance Act, 2020. The contentions as asserted on behalf
of the petitioners in such context in assailing the show cause notice were quite
similar, namely that the provisions of Section 122(1A) and Section 137 of the of
the CGST Act did not apply to the petitioners therein, in the absence of retention
of any personal benefit by the petitioners. The contention as urged on behalf of
the revenue was also quite similar to one as asserted in the present proceedings to
contend that the show cause notice indicated that there was responsibility
fastened on the petitioners, in regard to the affairs of the company, hence, the
petitioners cannot disown the involvement in the loss of revenue in the manner
as described in the show cause notice. It is in such context, the Court observed
that as a jurisdictional issue on the validity of the show cause notice was raised, in
the context of the only allegation as made against the petitioner in the show cause
notice, which was to the effect that he was a Senior Tax Operations Manager cum
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Authorised Person of M/s Maersk. The petitioner was called upon to show cause
as to why penalty equivalent to the tax evaded by M/s Maersk amounting to
3731,00,38,326/- be not imposed as the petitioner had committed an offence. In
the reply to the show cause notice, the petitioner had taken a clear position that
they were employees of the company and hence, no penalty proceedings of that
nature could be initiated against the petitioners. It is in such context, considering
the relevant provisions of the CGST Act namely Section 2(94), Section 2(107)
Section 122 and Section 137, the Court upholding the petitioner’s contentions,
made the following observations.:
“26. A plain reading of Section 122 clearly implies that it provides for levy of
penalty for “certain offences” by taxable person. Such taxable person would
render himself liable for a penalty for acts provided in clauses (i) to (xxi) of sub-
section (1). Insofar as sub-section (1A) of Section 122 is concerned, it provides
that any person (who would necessarily be a taxable person) retains the benefit of
the transactions covered under clause (i), (ii), (vii) or clause (ix) of sub section (1),
and at whose instance, such transaction is conducted, “shall be liable to a penalty
of an amount equal to the tax evaded or input tax credit availed of or passed on”.
This necessarily implies that sub-section (1A) applies to a taxable person as it
specifically speaks about the applicability of the provisions of clauses (i), (ii), (vii)
or clause (ix) of sub-section (1), with a further emphasis added by the words as
underscored by us. This clearly depict the intention of the legislature that a
person who would fall within the purview of sub-section (1A) of Section 122 is
necessarily a taxable person as defined under Section 2(107) of the CGST Act
read with the provisions of Section 2(94) of the CGST Act and a person who
retains the benefits of transactions covered under clauses (i), (ii), (vii) or clause
(ix) of sub-section (1) of Section 122.
27. Further, as noted above, Section 122(1A) also cannot be attracted qua the
person, in a situation when any person does riot retain the benefit of a transaction
covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and/or it is
applicable at whose instance such transactions are conducted, could be the only
person, who shall be liable to a penalty of an amount equivalent to the tax evaded
or input tax credit, wrongly availed of or passed on. The relevant provisions as
discussed hereinabove would show that such person can only be a taxable person
as defined under Section 2(107) of the CGST Act read with the provisions of
Section 2(94) of the CGST Act, who would be in a legal position, to retain the
benefit of tax on the ransaction covered under clauses (i), (ii), (vii) or clause (ix)
of sub-section (1), and at whose instance, such transaction is conducted. In the
absence of these basic elements being present, any show cause notice of the nature
as issued, would be rendered illegal, for want of jurisdiction as also would stand
vitiated by patent non-application of mind.
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28. If this is the plain meaning and consequence of the provisions of Section
122(1A), then necessarily the provision would manifest that person like the
petitioner, who is a mere employee of MLIPL which is although a group company
of Maersk, cannot fall within the purview of the said provision, as the petitioner
cannot be a ‘taxable’ or a ‘registered person’ within the meaning and purview of
the CGST Act so as to retain such benefits as the provision ordains. Hence, there
was no question of respondent No. 3 invoking Section 122(1A) against the
petitioner. Thus, the designated officer (respondent No. 3) invoking the said
provision against the petitioner is an act wholly without jurisdiction, so as to issue
the show cause notice. A provision, which ex facies inapplicable to the petitioner
who is an individual, has been invoked and applied in issuing the impugned show
cause notice.
29. It is, hence, difficult to accept the case of the revenue that the petitioner as
an employee of MLIPL was in any legal position under the CGST Act, who could
retain the benefit of a transaction, which would be covered under the said clauses
of sub-section (1) as sub-section (1A) of Section 122 would provide. At the cost
of this imagination which would be too far-fetched, even assuming that the
respondent is correct in its contention as raised in the show cause notice that the
said provisions are applicable to an individual like the petitioner (when they are
not), there is no material that it is at the instance of petitioner, transactions are
conducted, so as to make the petitioner liable for such a penalty, that too of an
amount equivalent to the tax alleged to be evaded or ITC availed or passed on.
Thus, there is no material to support that any of the ingredients as specified in
sub-section (1A) of Section 122 would stand attracted so as to confer jurisdiction
on respondent No. 3 to adjudicate any allegations/charges as made under sub-
section (1A) of Section 122. This is abundantly clear from the bare contents of
paragraph 20 and 5.19.1 of the show cause notice as noted by us hereinabove.
…………
32. For the aforesaid reasons, it is clear from the relevant contents of the show
cause notice that the basic jurisdictional requirements/ingredients, are not
attracted for issuance of the show cause notice under Section 74 of the CGST Act
so as to inter alia invoke Section 122(1A) and Section 137 against the petitioner.
Even otherwise, it is ill-conceivable to read and recognize into the provisions of
Section 122 and Section 137, of the CGST Act any principle of vicarious liability
being attracted. There could be none. Thus, Respondent No. 3 clearly lacks
jurisdiction to adjudicate the show cause notice in its applicability to the
petitioner. Thus qua the petitioner, the impugned show cause notice is rendered
bad and illegal, deserving it to be quashed and set aside.
26. We may observe that the decision of this Court in Shantanu Sanjay
Hundekari (supra) was assailed by the Revenue before the Supreme Court in the
proceedings of Union of India vs. Shantanu Sanjay Hundekari (supra). The
Supreme Court dismissed the special leave petitions by the following order :-
“1. Heard Mr. N. Venkataraman, the learned Additional Solicitor General
appearing for the Revenue and Ms. Anuradha Dutt, the learned counsel
appearing for the respondents.
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2. Delay condoned.
3. The High Court while allowing the Writ Petitions filed by the respondents,
quashed the show cause notices issued by the Revenue seeking recovery of
Rs.3731 Crore holding as under in Paras 32 and 33 respectively:-
32. For the aforesaid reasons, it is clear from the relevant contents of the
show cause notice that the basic jurisdictional requirements/ingredients,
are nor attracted for issuance of the show cause notice under Section 74 of
the COST Act so as to inter alia invoke Section 122(1-A) and Section 137
against the petitioner. Even otherwise, it is ill-conceivable to read and
recognize into the provisions of Section 122 and Section 137, of the
CGST Act any principle of vicarious liability being attracted. There could
be none. Thus, Respondent no. 3 clearly lacks Jurisdiction to adjudicate
the show cause notice in its applicability to the petitioner. Thus qua the
petitioner, the impugned show cause notice is rendered bad and illegal,
deserving it to be quashed and set aside.
33. The foregoing discussion would also lead us to conclude that it is
highly unconscionable and disproportionate for the concerned officer of
the Revenue to demand from the petitioner an amount of Rs.3731 crores,
which in fact is clearly alleged to be the liability of Maersk, as the contents
of the show cause notice itself would demonstrate, The petitioner would
not be incorrect in contending that the purpose of issuing the show cause
notice to the petitioner who is merely an employee, was designed to
threaten and pressurize the petitioner.”
4. The issue before the High Court was one relating to the interpretation of
Section 122(1-A) and Section 137 of the GST Act.
5. The High Court after assigning cogent reasons took the view that the
respondent herein was merely an employee of the Company and he could not
have been fastened with the liability of Rs.3731 Crore.
6. We see no good reason to interfere with the common impugned Orders passed
by the High Court.
7. However, the question of law as regards the two provisions, referred to above,
is kept open.
8. The Special Leave Petitions are, accordingly, dismissed.
9. Pending applications, if any, shall also stand disposed of.”
27. We do not find, as to why, the decision in Shantanu Sanjay Hundekari
(supra) would not be applicable in the facts of the present case, insofar as the
petitioners are concerned, when they are the employees of the company namely
M/s. Shemaroo Entertainment Limited, who cannot be held to be liable and more
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particularly in the absence of any material that the petitioners are taxable persons
and who have in fact retained the benefits of the transactions covered under
clauses (i), (ii), (vii) or clause (ix) of sub-section (1) of Section 122. To this effect,
we do not find any specific finding recorded in the impugned order fastening
penalty on the petitioners, that any benefit of the transactions covered under the
said clauses was retained by the petitioners. In the absence of any such material
and findings, we do not find, as to how the jurisdictional requirement of
applicability of Section 122(1A) can at all be said to be present and applicable, in
the designated officer passing the impugned order-in-original, against the
petitioners. This is also clear from the reading of the reply affidavit which do not
in any manner sets out as to how such basic ingredients of sub-section (1A) of
Section 122 stood attracted and/or present in the designated officers passing the
impugned order-in-original against the petitioners.
28. As a result of the aforesaid discussion, the only conclusion, which can be
arrived at, is that the show cause notices and the consequent impugned order-in-
original as passed against the petitioners would be required to be held to be
illegal, being without jurisdiction.
29. The other contention as urged on behalf of the petitioners is that the
Competent Authority did not have jurisdiction to retrospectively apply the
provisions of sub-section (1A) of Section 122 which came to be incorporated in
the CGST Act by Act No.12 of 2020 with effect from 1 January 2021.
Admittedly, the period in question, subject matter of the show cause notice is the
period from July 2017 to July 2023. Thus, according to the petitioners, the
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period from July 2017 to 1 January 2021 is the period, when such penal
provision was not in existence. Thus, there could not have been any retrospective
application of any penalty provision. The law in this regard is well settled
including considering the clear provision of Article 20(1) of the Constitution
which reads thus:
“20. Protection in respect of conviction for offences
(1)No person shall be convicted of any offence except for violation of a law in
force at the time of the commission of the act charged as an offence, nor be
subjected to a penalty greater than that which might have been inflicted under
the law in force at the time of the commission of the offence.
(2) …..”
(emphasis supplied)
30. Thus, a person cannot be penalized under the law/provision which was
not in force for the period in which such alleged acts are stated to have been
committed. There could not have been any retrospective application of Section
122(1A) of the CGST Act in issuing the impugned show cause notice for the
period July 2017 to 1 January 2021, and for such reason also the impugned
order-in-original insofar as such period is concerned, cannot be sustained.
31. Mr. Ochani’s reliance on Mukesh Kumar Garg vs Union of India (supra)
in the facts of the present case is quite misplaced inasmuch as in such decision the
Court was concerned in respect of the penalty imposed for incorporating fake
firms and availing fake ITC without supply of goods. It was held that such order
was appealable and a writ petition could not be entertained as the Writ Court
cannot go into the factual aspects on the issue, whether the penalty imposed was
justified or not, and whether the same was required to be reduced proportionately
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in terms of invoices raised by the petitioner, being an adjudication on factual
matrix. There cannot be any dispute on the observations as made by the Court in
the facts of the said case. However, we do not find that the issue of jurisdiction in
a manner which was considered by this Court in the case of Shantanu Sanjay
Hundekari (supra) and confirmed by the Supreme Court in its judgment (supra)
was subject matter of consideration of the learned Single of the Delhi High
Court. Reliance on the said decision hence is not well founded.
32. In the light of the above discussion, the petition needs to succeed. It is
accordingly allowed in terms of prayer clause (a) (supra).
33. No costs.
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