GST Act | Personal Penalty Can Apply To Non-Taxable Persons For Transactions From January 1, 2021: Delhi High Court
The Delhi High Court has held that the expression “any person” under Section 122(1A) of the Central Goods and Services Tax (CGST) Act, 2017 is not confined to a “taxable person” and can include persons who are not registered or liable to be registered under the GST regime.
At the same time, the Court ruled that Section 122(1A), which provides for personal penalties in specified fraudulent GST transactions, operates prospectively and can be invoked only in respect of acts or transactions committed on or after January 1, 2021, when the provision came into force.
"i. the expression 'any person' occurring in Section 122(1A) of the Act of 2017 is not confined to a 'taxable person', and includes any person, whether or not registered or liable to be registered, who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or (ix) of Section 122(1), and at whose instance such transaction is conducted. ii. Section 122(1A) of the Act of 2017 applies prospectively and is attracted only in respect of transactions or acts committed on or after 01.01.2021, irrespective of the date on which the Show Cause Notice is issued," it held.
The Division Bench of Justices Anil Khetarpal and Bharat Parashar delivered the judgment in a batch of petitions challenging show cause notices and orders imposing personal penalties under Section 122(1A) of the CGST Act.
The petitions arose from proceedings against persons connected with M/s Worlds Window Impex India Private Limited.
The adjudicating authority had confirmed a demand against the company on allegations of circular trading and wrongful availment of Input Tax Credit (ITC) amounting to approximately ₹24.99 crore through invoices allegedly issued without actual supply of goods.
The authority also imposed separate personal penalties of ₹24,99,88,069 each on three petitioners under Section 122(1A), besides penalties under Section 125, on the ground that they had served as directors of the company at different points of time.
The Court identified two principal questions: whether penalty under Section 122(1A) could be imposed on a non-taxable person, and whether the provision applied prospectively to offences committed after January 1, 2021.
On the first issue, the Court held that the expression “any person” in Section 122(1A) is wider than the expression “taxable person”.
It held that the provision extends to every person, whether or not registered or liable to be registered under the CGST Act, provided the statutory requirements under Section 122(1A) are satisfied.
The Court explained that the provision covers a person who retains the benefit of specified transactions under Section 122(1)(i), (ii), (vii) or (ix) and at whose instance the transaction is conducted.
It noted that Section 122(1A) was introduced to address specified fraudulent transactions, including those involving bogus invoices and wrongful availment or utilisation of ITC. It observed that the statutory scheme does not warrant restricting the provision only to persons who qualify as “taxable persons”.
On the second issue, the Court held that Section 122(1A) has prospective operation.
The provision was brought into force from January 1, 2021. The Court held that its applicability has to be determined with reference to the date of the underlying act or transaction and not the date on which the show cause notice is issued.
“Only transactions or acts occurring on or after 01.01.2021…can attract the penalty contemplated thereunder” it said, subject to satisfaction of the statutory requirements.
It reasoned that the monetary penalty under Section 122(1A), although civil in form, is penal in consequence. Consequently, its applicability must have a nexus with the date on which the alleged contravention occurred.
The Court also invoked Article 20(1) of the Constitution, observing that a person cannot be penalised under a provision that was not in force when the alleged act was committed.
In doing so, the Court disagreed with an earlier view of the Delhi High Court in Bhupender Kumar v. Additional Commissioner (Adjudication), CGST and Ors (2025), which had held that Section 122(1A) penalty can be imposed retrospectively, provided the show cause notice had been issued to the assessee when the provision was introduced.
The Bench instead agreed with the Bombay High Court's reasoning in Amit Manilal Haria and Ors. v. Joint Commissioner, CGST and Central Excise and Anr. on the question of temporal applicability, while expressly differing from its interpretation restricting “any person” to a taxable person.
So far as Petitioners are concerned, the Court granted them liberty to pursue statutory appeals.
For Petitioner: Advocates Chinmaya Seth, Palak Mathur, Karanveer Singh, Rupesh Gutpa
For Respondents: Anurag Ojha, SSC, Dipak Raj, Aryaman Singh Chouhan, Aditya Chaudhary.