Penalty U/S 122(1A) Of CGST Act Can Be Imposed On Both Taxable And Non-Taxable Person: Delhi High Court

A division bench of Justices Prathiba M. Singh and Rajneesh Kumar Gupta thus differed from the Bombay High Court's decision in Amit Manilal Haria V. The Joint Commissioner of CGST & CE & Ors. (2025) which held that Section 122(1A) cannot be invoked against an employee as he is not a 'taxable' person.

The bench observed, “The purpose of Section 122(1A) of the CGST Act is clearly to make persons who may be responsible for having created bogus invoices and having utilised ITC without the receipt of goods and services and for distributing ITC in contravention of Section 20 of the CGST Act. It can be seen that the manner in which companies function is that there is a management who would be taking the decisions on behalf of taxable persons. These companies being inanimate, the responsibility has, by the wisdom of the legislature, been fixed under Section 122(1A) of the CGST Act upon any person who retains the benefits of a transaction.”

The development comes in a petition filed by two former directors of a company engaged in the business of manpower recruitment, being probed for evasion of GST.

The case of the CGST Department was that there was a short payment of GST to the tune of Rs.40,61,37,843/- by the company and the same was liable to be recovered under Section 74. The adjudicating authority then passed the impugned order raising demand on the company and its directors, i.e. the Petitioners.

The Petitioners claimed that they have resigned from the company in 2020 and are not taxable persons under Section 122 or 122(1A) of the CGST Act and, therefore, no liability can be fastened on them. Reliance was placed on Amit Manilal Haria (supra).

On the other hand, the Department argued that the Petitioners are active directors in the company and in any case, the language used in Section 122(1A) is 'any person' and not 'taxable person'.

They also relied on Bharat Parihar V. State of Maharashtra (2023) where the Bombay High Court has held that the phrase 'any person' would include a non-taxable person.

At the outset, the High Court observed that the Bombay High Court in Amit Manilal Haria (supra) had passed only an interim order. Moreover, the case was factually different in as much as there was a clear finding to the effect that the Petitioner therein was an employee of the company and not a director who may have taken any benefit.

It thus observed, “Clearly, there is no doubt that the Petitioners were directors of the company. The exact role that the Petitioners played in the said company, the control and management that the Petitioners exercised as also whether they derived any benefit would be a question that would have to be factually ascertained…The statements which have been recorded by the directors i.e., the Petitioners show that each of them is trying to shrug off their responsibility. In the opinion of this Court, the matter requires closer scrutiny on facts by the Appellate Authority as to who was responsible for running the company and who was taking decisions including relating to generation of invoices, making payments, etc.”

Insofar as the question as to whether the penalty could have been imposed on any person under Section 122 and 122(1A) of the CGST Act is concerned, the Court said a perusal of the definition of 'any person' under Section 2(84) of the CGST Act would show that the same includes an individual without any limitations.

It held, “The question as to which person has retained the benefit and who has not would again be a factual issue. Directors of a company and others who manage such companies owe a responsibility to ensure that companies do not engage in such fraudulent activity for availment of ITC without actual supply of goods, distribution of ITC to persons who have raised fake invoices and non-filing of GST returns. Such activities would have a greater financial impact on society in general and the economy in particular, therefore Section 122 (1A) of the CGST Act has been enacted to also make such persons liable under these circumstances.”

As such, the Court asked the Petitioners to approach the Appellate Authority.

At this juncture, the bench was informed that for a non-taxable person it is not possible to file an appeal through the portal and a mechanism would have to be created or made available by the Department to enable the Petitioners to file the appeals.

The Court then ordered, “Let the Department communicate to the Petitioners within two weeks the mechanism in which they can avail of their appellate remedies. Upon receiving the intimation, the Petitioners shall file the appeal within 30 days.”

Appearance: Mr. Rajesh Mahna, Mr. Ramand Ray, Ms. Silky Wadhwa and Ms. Ridhi Mahna, Advocates for Petitioners; Mr. Aakash Verma, Advocate for Respondent

Case title: Gurudas Mallik Thakur v. Commissioner Of Central Goods And Service Tax & Anr.

Citation: 2025 LiveLaw (Del) 520

Case no.: W.P.(C) 5083/2025

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