The Hon’ble Delhi High Court in Parag Garg v. The Common Adjudicating Authority, Additional Commissioner of Central Tax, CGST Delhi West [W.P.(C) 5643/2025 dated July 04, 2025] held that no coercive action shall be taken, where penalty under Section 122(1A) of the CGST Act, 2017 was imposed for transactions conducted prior to the enforcement of the said provision.
Facts:
Parag Garg (“the Petitioner”) was subjected to penalty proceedings under Section 122(1A) of the CGST Act, 2017. The Petitioner contended that the provision came into force only from January 1, 2021 and, therefore, cannot be applied to transactions that occurred prior to the said date.
The Court was informed that the taxable person, M/s Sanskriti EXIM Private Limited, had separately challenged the show cause notice and subsequently amended its writ petition (W.P.(C) 929/2025) to challenge the penalty order. The Court noted the similarity of issues between both cases and accordingly directed that they be dealt together.
Issue:
Whether Section 122(1A) of the CGST Act, 2017 can be invoked for imposing penalty in respect of transactions that took place before January 1, 2021, i.e., before the provision came into force?
Held:
The Hon’ble Delhi High Court in W.P.(C) 5643/2025 held as under:
- Observed that, the issue regarding retrospective applicability of Section 122(1A) is under consideration in other pending matters.
- Noted that, the taxable person, M/s Sanskriti EXIM Private Limited, had also filed a writ petition challenging the related proceedings and order, and directed that the present petition be dealt with W.P.(C) 929/2025 and other similar petitions.
- Granted time till July 15, 2025 to the Respondents to file a counter affidavit and ordered that in the meantime, no coercive action shall be taken against the Petitioner.
Our Comments:
Section 122(1A) was inserted through the Finance Act, 2020 and came into effect from January 1, 2021. It allows penalty to be imposed on any person who gains from tax evasion and is responsible for causing a registered taxpayer to commit a violation specified offences listed under Section 122(1). The Petitioner in this case has the interim protection against action as granted by the Court in consistency with previously established cases.
The Bombay High Court in Amit Manilal Haria v. Joint Commissioner of CGST & CE, WP No. 5001 of 2025, where it was held that, Prima facie, we find substance in the argument that Section 122(1A), brought on the statute book only with effect from January 1, 2021, cannot be retrospectively applied to impose penalty for periods prior to that date. Section 122(1A) is prospective in nature and cannot be invoked for alleged contraventions prior to January 1, 2021 and that Penalty under Section 122(1A) applies only to a person who is a “taxable person” and who has retained the benefit of the contravention, which must be proved with evidence.
The Delhi High Court in the case of Bhupender Kumar v. Additional Commissioner Adjudication CGST Delhi North & Ors.[ W.P.(C) 9141/2025 dated July 16, 2025] 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.
Relevant Provision:
Section 122(1A) – CGST Act, 2017
“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.”
CLICK HERE FOR OFFICIAL JUDGMENT COPY
(Author can be reached at info@a2ztaxcorp.com)
DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing and we reserve a legal right for any infringement on usage of our article or newsletter without prior permission.
