Penalty U/S 122(1A) GST Act Can Be Imposed Retrospectively Even If SCN Was Issued After Its Enactment: Delhi High Court

The Delhi High Court has made it clear that Section 122(1A) of the Goods and Services Tax Act 2017 can be imposed retrospectively, provided the show cause notice had been issued to the assessee when the provision was introduced.Section 122 contemplates penalties for certain offences under the GST Act, including fraudulent availment of input tax credit.Section 122(1A) was introduced by the Finance Act 2020 and came into effect on 1 January 2021. It prescribes that any person who retains the benefit of wrongfully availed ITC, etc. and at whose instance such a transaction is conducted, shall be liable to penalty.A division bench of Justices Prathiba M. Singh and Rajneesh Kumar Gupta observed,“In so far as the retrospective application of Section 122(1A) of CGST Act is concerned, the same would be governed by the date of the SCN…The law has been clearly amended to also implicate such individuals who may be involved in such fraudulent transactions and the said law cannot be set at naught by holding the same to not be retrospectively applicable to transactions which took place prior to the date when the law was enacted.”In the case at hand, SCN was issued on 8th March, 2024, i.e. after enactment of Section 122(1A), over fraudulent availment of large quantum of ITC to the tune of Rs. 285,66,26,459/- through 54 firms created by one Sanjay Sehgal and his associates.The Petitioner herein was engaged as a GST consultant by Sehgal.Petitioner argued that he was merely a consultant, retained at a commission of ₹10,000/- to ₹15,000/-, which would constitute benefits derived from the incorporation of these fake firms and passing fraudulent ITC.He also submitted that no notice was issued to him under Section 122(1A) and hence, no penalty could have been imposed. Reliance was placed on M/s Samsung India Electronics Private Limited v. State of U.P. & Ors. to argue that if the show cause notice does not contain a specific allegation, the final order cannot be passed on a ground not contained in the show cause notice.It was further contended that Section 122(1A) could not have been invoked for any transactions prior to the said provision being enacted i.e. it cannot be made retrospectively applicable.The High Court noted that the Petitioner was all along aware about creation of fake firms. “The Petitioner was thus fully aware and enabled the creation of these fake firms and was aware that ITC was being fraudulently availed of. The Petitioner, being a GST consultant who was also earlier working with the Delhi GST Department has clearly made use of his knowledge and assisted Mr. Sehgal in setting up these fake firms. The structuring of these firms, the manner in which the transactions have to be done, are all issues in which the Petitioner would have clearly had a role to play, as much as he was a GST consultant,” the Court held rejecting Petitioner's plea that he was a mere consultant.It also noted that Section 122 of the CGST Act was clearly mentioned in the SCN issued to the Petitioner and “Section 122(1A) of the CGST Act would clearly be covered in the broader provision”.As such, the Court refused to interfere in the matter.Appearance: Mr. Abhishek Garg and Mr. Ranesh Singh Mankotia, Advocates for Petitioner; Ms. Monica Benjamin SSC and Ms. Nancy Jain Advocates for RespondentCase title: Bhupender Kumar v. Additional Commissioner Adjudication CGST Delhi North & Ors.Citation: 2025 LiveLaw (Del) 803Case no.: W.P.(C) 9141/2025Click here to read order

Penalty U/S 122(1A) GST Act Can Be Imposed Retrospectively Even If SCN Was Issued After Its Enactment: Delhi High Court

Kapil Dhyani

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