Delhi High Court Declines To Rule On GST Penalty For Non-Taxable Persons Amid Proceedings Before Supreme Court

The Delhi High Court has recently declined to examine the question of whether a person who is not a “taxable person” can be penalised under Section 122(1) of the Central Goods and Services Tax Act, 2017, noting that the issue is pending consideration before the Supreme Court.

The Division Bench of Justices Anil Kshetarpal and Shail Jain disposed of twelve connected petitions filed by directors and other individuals against penalties imposed under Sections 74, 76(2) and 122(1) of the CGST Act.

Petitioners had been issued show cause notices in 2020 in connection with allegations that the companies with which they were associated had fraudulently availed and utilised Input Tax Credit on the basis of invoices issued without any corresponding supply of goods.

While no tax demand was raised against the Petitioners in their individual capacities, they were called upon to show cause why penalties should not be imposed upon them for allegedly masterminding the modus operandi involving the generation, availment and utilisation of fraudulent ITC.

Petitioners contended that Section 122(1) applies only to a “taxable person” and that they had neither been treated as taxable persons nor subjected to any tax demand in their individual capacities. They also questioned the invocation of Sections 74 and 76(2), contending that no tax was payable or collected by them personally.

Revenue, however, submitted that the impugned order was appealable under Section 107 of the CGST Act and Petitioners' contentions could be examined by the Appellate Authority.

The High Court then noted that the issue concerning the applicability of Section 122(1) to a person who is not a “taxable person” is presently pending before the Supreme Court in Mukesh Kumar Garg v. Union of India and Ors.

Observing that judicial propriety required it to refrain from expressing any opinion on an issue pending before the Supreme Court, the Court said,

“The principal issue raised by the Petitioners concerning the applicability of Section 122(1) of the CGST Act to a person who is not a 'taxable person' is presently under consideration before the Supreme Court. Judicial propriety, therefore, warrants that this Court refrain from expressing any opinion on the said issue.”

The court noted that the Petitioners had raised several other grounds requiring examination of their respective roles, the allegations against them and the material relied upon by the Adjudicating Authority.

These issues, it held, could appropriately be examined in appellate proceedings.

As such, the Court relegated the petitioners to an appellate remedy.

For Petitioner: Advocates Abhishek Garg and Naman Mehta

For Respondents: Advocate Anurag Ojha, SSC with Advocates Dipak Raj, Aryaman Singh Chouhan and Aditya Chaudhary