The Delhi High Court has disposed of a batch of 12 writ petitions challenging penalties imposed on directors and managing directors in proceedings concerning alleged fraudulent availment and utilisation of Input Tax Credit (ITC), holding that the central legal question—whether Section 122(1) of the Central Goods and Services Tax Act, 2017 (CGST Act) can be invoked against a person who is not a “taxable person”—is already pending consideration before the Supreme Court.
The bench of Justice Anil Khetarpal and Justice Shail Jain refrained from expressing any opinion on the issue and directed the petitioners to pursue their statutory appellate remedy under Section 107 of the CGST Act.
The dispute arose out of common adjudicatory proceedings involving 61 companies/firms and 71 individuals connected with those entities. Six firms were not dealt with in the present proceedings because the matter concerning them had been kept pending in view of an order passed by the Punjab and Haryana High Court.
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The petitioners before the Delhi High Court were directors or managing directors of the concerned companies. According to the show cause notices issued in 2020, the companies were allegedly involved in fraudulent availment and utilisation of ITC on the basis of invoices that were not backed by any corresponding supply of goods. The relevant period covered by the notices was July 1, 2017 to March 31, 2019.
Significantly, the individual petitioners were not themselves subjected to a demand of tax through the show cause notices. Instead, they were called upon to explain why penalties should not be imposed upon them under Sections 74, 76(2) and 122(1) for allegedly masterminding the modus operandi through which fraudulent ITC was generated, availed and utilised.
The adjudicating authority subsequently imposed penalties on the individual petitioners, with the amounts corresponding to the allegedly ineligible ITC associated with the respective companies. The tabulated details in the judgment, spread across pages 7 and 8, record substantial amounts of allegedly ineligible ITC and corresponding penalties against several directors and managing directors.
The principal legal objection raised before the High Court was directed at Section 122(1) of the CGST Act.
The petitioners argued that Section 122(1) applies to a “taxable person”. According to them, they had neither been treated as taxable persons in their individual capacities nor had any tax demand been raised against them personally. They therefore questioned how a penalty under Section 122(1) could be imposed upon them individually.
They also challenged the invocation of Sections 74 and 76(2), contending that they had not personally been liable to pay or collect the tax in question.
The Revenue, on the other hand, contended that the impugned order was appealable under Section 107 of the CGST Act. It argued that the various grounds raised by the petitioners could appropriately be examined by the statutory Appellate Authority rather than in writ proceedings.
A significant factor influencing the High Court’s approach was the pendency of the same legal question before the Supreme Court.
The High Court noted that the applicability of Section 122(1) to a person who is not a taxable person is presently under consideration before the Supreme Court in Mukesh Kumar Garg v. Union of India & Ors.
The Supreme Court, by an order dated August 4, 2025 in Special Leave to Appeal (Civil) No. 18178/2025, had granted leave after noting, among other things, the contention that Section 122(1) could not apply to the petitioner because he was a non-taxable person. The Supreme Court had also noted a separate contention concerning the prospective application of Section 122(1A), which came into force from January 1, 2021.
The Delhi High Court specifically clarified that only the first issue was relevant to the present batch of cases. Section 122(1A) had neither been invoked in the show cause notices nor applied in the impugned order against the petitioners.
In view of the pending Supreme Court proceedings, the Delhi High Court held that judicial propriety required it to refrain from deciding whether Section 122(1) can be applied to an individual who does not qualify as a taxable person.
The Court observed that the petitioners had raised several other grounds relating to their individual roles, the allegations made against them and the material relied upon by the adjudicating authority. However, these questions could appropriately be examined in the statutory appellate proceedings.
Thus, the judgment does not determine whether the penalties imposed upon the directors and managing directors were legally sustainable on merits. Instead, it leaves the principal statutory question open for determination in accordance with the eventual ruling of the Supreme Court.
The High Court also dealt with the question of the applicable pre-deposit requirement for an appeal.
The Court referred to its earlier judgment dated July 31, 2026 in Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II), CGST Delhi Zone & Anr. In that decision, the Court had held that the amended proviso to Section 107(6), substituted with effect from October 1, 2025, would not govern an appeal arising from adjudicatory proceedings that had commenced through a show cause notice issued before that date.
Such an appeal, the Court held, would continue to be governed by Section 107(6) as it stood when the adjudicatory proceedings commenced.
Since the show cause notices in the present cases were issued in 2020, well before October 1, 2025, the High Court held that the petitioners’ appellate remedy would consequently be governed by the earlier version of Section 107(6).
The Court also addressed a practical difficulty that could arise for individuals seeking to challenge the penalty orders.
Since the petitioners were proceeded against in their individual capacities and may not have individual GST registrations or temporary identification numbers, the electronic GST portal might not permit them to institute an appeal electronically.
The High Court therefore directed that, if the electronic portal does not permit a petitioner to file an appeal because of the absence of an individual GST registration or temporary identification number, the Appellate Authority must accept the appeal in physical form. Such an appeal cannot be rejected merely because it was filed physically rather than through the electronic portal.
The High Court further protected the petitioners against potential limitation difficulties arising from their having pursued writ proceedings before the Court.
It directed that if an application is made before the Appellate Authority seeking exclusion of the period spent pursuing the writ petitions before the High Court, the application should be considered pragmatically for the purpose of limitation.
The writ petitions were ultimately disposed of by relegating the petitioners to the statutory appellate remedy under Section 107 of the CGST Act and corresponding provisions of the applicable State or Union Territory enactments.
The High Court expressly directed that all grounds raised in the writ petitions would remain open for consideration before the Appellate Authority. The issue concerning the applicability of Section 122(1) to a person who is not a taxable person would have to be dealt with consistently with the eventual decision of the Supreme Court in Mukesh Kumar Garg.
The Court also clarified that it had not expressed any opinion on the merits of the rival contentions. The writ petitions, along with the pending applications, were accordingly disposed of.
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