The Hon’ble Bombay High Court in the case of Amit Manilal Haria & Ors. v. Joint Commissioner of CGST & Central Excise & Ors. [Writ Petition No. 5001 of 2025, order dated February 25, 2026] held that penalty under Section 122(1A) of the CGST Act cannot be imposed on company employees unless they are ‘taxable persons’ who retained the benefit of the impugned transaction and at whose instance such transaction was conducted; further, the provision cannot be applied retrospectively for the period prior to January 1, 2021.
Facts:
Amit Manilal Haria along with Hiren Uday Gada and Atul Hirji Maru (‘the Petitioners’) were officers/employees of M/s. Shemaroo Entertainment Ltd., holding positions as Chief Financial Officer, Chief Executive Officer and Joint Managing Director respectively.
The Joint Commissioner of CGST & Central Excise (‘the Respondent’) issued show cause notices alleging that the company had availed and passed on ineligible Input Tax Credit (ITC) amounting to approximately ₹133.60 crore through fake invoices without actual supply of goods or services. Consequently, separate notices were issued to the Petitioners proposing personal penalty under Section 122(1A) of the CGST Act for the financial years 2017-18 to 2021-22.
The Petitioners contended that, they were employees and not ‘taxable persons’ registered under the CGST Act. Section 122(1A) applies only when a person retains the benefit of the impugned transaction and at whose instance the transaction was conducted. The provision came into force only on January 1, 2021, and therefore could not be applied to the period July 2017 to December 31, 2020. Further they argued that no material existed to show that the Petitioners personally retained any benefit of the alleged ITC transactions.
The Respondent contended that, Section 122(1A) applies to “any person”, not merely taxable persons. The Petitioners, by virtue of their managerial roles, controlled the company and were responsible for fraudulent transactions involving fake ITC and that the provision could be invoked as it was in force on the date of issuance of the show cause notice.
Aggrieved by the Order-in-Original dated February 1, 2025 imposing penalty of ₹133.60 crore each on the Petitioners, they approached the Bombay High Court by filing a writ petition seeking quashing of the impugned order.
Issue:
Whether penalty under Section 122(1A) of the CGST Act can be imposed on employees/officers of a company who are not ‘taxable persons’, and whether the provision can be applied retrospectively for periods prior to January 1, 2021?
Held:
The Hon’ble Bombay High Court in Writ Petition No. 5001 of 2025 held as under:
- Observed that, Section 122(1) of the CGST Act applies specifically to a ‘taxable person’, defined under Section 2(107) as a person registered or liable to be registered under the Act.
- Noted that, Section 122(1A) must be read conjointly with clauses (i), (ii), (vii) and (ix) of Section 122(1) and therefore the expression “any person” must be interpreted in the context of a ‘taxable person’.
- Observed that, invocation of Section 122(1A) requires fulfilment of two conditions, i.e., the person must retain the benefit of the transaction covered under clauses (i), (ii), (vii) or (ix) of Section 122(1); and the transaction must have been conducted at the instance of such person.
- Noted that, the Petitioners were merely employees of the company and there was no finding that they retained any benefit of the alleged transactions. Therefore, the employees/officers cannot be fastened with vicarious liability for tax penalties under the CGST Act.
- Observed that, Section 122(1A) was introduced with effect from January 1, 2021 vide Notification No. 92/2020–Central Tax dated December 22, 2020.
- Held that, penal provisions cannot be applied retrospectively, as Article 20(1) of the Constitution prohibits punishment under a law that was not in force at the time of commission of the alleged offence and therefore, the show cause notices and the Order-in-Original imposing penalties on the Petitioners were without jurisdiction and liable to be quashed.
Our Comments:
The judgment relies extensively on the earlier decision of the Bombay High Court in Shantanu Sanjay Hundekari v. Union of India [2024 (89) G.S.T.L. 62 (Bom.)], where the Court examined the scope of Sections 122(1A) and 137 of the CGST Act. In that case, the Petitioners were employees of Maersk Line India Pvt. Ltd., against whom a demand-cum-show cause notice sought penalty equivalent to ₹3731 crore, being the alleged tax evasion by the company. The Court held that Section 122(1A) applies only where a person retains benefit of the transaction and is in a legal position as a taxable person; employees cannot be treated as taxable persons for such purposes. Further the Supreme Court in Union of India v. Shantanu Sanjay Hundekari [(2025) 27 Centax 14 (SC)], dismissed the Revenue’s Special Leave Petition and declined to interfere with the Bombay High Court judgment, although it kept the question of law open.
Relevant Provisions:
Section 122(1A) of the CGST Act, 2017
“122. Penalty for certain offences.-
(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.”
Section 2(84) and Section 2(107) of the CGST Act, 2017
“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;”
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