GST Penalty For Wrongful ITC Claims Can’t Be Imposed on Company Employees: Bombay HC

The Bombay High Court has held that the GST penalty under Section 122(1A) of the CGST Act for the wrongful Input Tax Credit Claims (ITC) cannot be imposed on company employees without being ‘taxable persons’. The bench of Justice G. S. Kulkarni and Justice Aarti Sathe has observed that petitioners are the employees of the company namely M/s. Shemaroo Entertainment Limited, who cannot be held to be liable and more particularly in the absence of any material that the petitioners are taxable persons and who have in fact retained the benefits of the transactions covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) of Section 122. The dispute originated from a search conducted by GST authorities in September 2023 at various firms suspected of issuing fake invoices without actual supply of goods or services. Based on statements recorded during the investigation, the probe was extended to Shemaroo Entertainment Limited. Following the search, company officials were summoned and their statements recorded. They were also arrested under provisions relating to GST offences but were later granted bail. The company subsequently deposited ₹12 crore under protest during the investigation. Later, show cause notices were issued alleging that the company had availed inadmissible ITC of approximately ₹70.25 crore and passed on ineligible ITC of about ₹63.35 crore through fake invoices. Separate notices were issued to the executives proposing penalties under Section 122(1A) of the CGST Act. The adjudicating authority imposed penalties of ₹133.60 crore each on the Chief Financial Officer, Chief Executive Officer, and Joint Managing Director. The penalties were equivalent to the total alleged fake ITC availed and passed on by the company. Collectively, the penalties exceeded ₹400 crore. The executives challenged these penalties before the High Court, arguing that they were employees of the company and not taxable persons under GST law. They contended that Section 122(1A) could not be invoked against them personally and that the penalties were disproportionate and without jurisdiction. The principal legal issue before the Court was whether GST authorities could impose personal penalties on company officials under Section 122(1A) for alleged wrongful ITC claims made by the company. The petitioners argued that Section 122(1A) applies only to taxable persons and not employees. The provision was applied retrospectively for periods prior to its enforcement in January 2021. The penalties were disproportionate and excessive. No personal financial benefit was derived by the executives. Judicial precedents had limited personal liability of employees in similar cases. The GST department contended that the executives were not merely employees but were responsible for managing and controlling the company’s affairs. According to the department, the executives played an active role in alleged fake invoicing and fraudulent ITC transactions. The department also argued that Section 122(1A) applies to “any person” involved in tax evasion activities and that penalties equivalent to the tax evaded were mandatory under the law. The High Court examined whether the proceedings and penalties imposed on the executives were legally sustainable under Section 122(1A) of the CGST Act. The Court focused on jurisdictional validity of proceedings against individuals, applicability of Section 122(1A) to company officials, scope of personal liability under GST law and validity of imposing penalties equivalent to alleged ITC amounts The Court noted that the central question was whether the show cause notices and penalty orders suffered from a jurisdictional defect in invoking Section 122(1A) against company officials. Case Details Case Title: Amit Manilal Haria Versus The Joint Commissioner Citation: JURISHOUR-101-HC-2026(Ker) Case No.: WRIT PETITION NO. 5001 OF 2025 Date: 25 February 2026 Counsel For Appellant: Abhishek A. Rastogi Counsel For Respondent: Ram Ochani Click Here To Read Order Read More: Average Sale Price Can’t Be Basis for Alleging Undervaluation: CESTAT

GST Penalty For Wrongful ITC Claims Can’t Be Imposed on Company Employees: Bombay HC

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