Director Cannot Be Prosecuted For Company's GST Offence Without Arraigning It: Punjab & Haryana High Court

The Punjab and Haryana High Court has held that a director cannot be prosecuted for a company's GST offence without the company itself being arraigned as an accused.

It quashed the criminal complaint against Manoj Bansal, a director of Nikita Industries Pvt. Ltd.

Justice Shalini Singh Nagpal observed, “In the absence of M/s NIPL, being arraigned as an accused, the complaint against petitioner, a Director of the Company would not be maintainable. Unless the company is prosecuted, no vicarious liability can be fastened on the petitioner. Prosecution of the petitioner in his personal capacity without arraigning the company cannot proceed against settled principles of law.”

The case arose from a complaint filed by the Directorate of Goods and Services Tax Intelligence under Section 132 of the Central Goods and Services Tax Act, 2017.

It alleged that Nikita Industries had wrongly availed Input Tax Credit of ₹15.44 crore on the strength of invoices issued by 31 bogus or non-existent firms, without actual supply of goods.

The investigation found that Bansal, as Director, purchased lead metal from the open market in cash without invoices and obtained invoices from the dummy firms to fraudulently avail the ITC.

Bansal argued that Nikita Industries was the registered person under the GST Act and was the entity that had allegedly availed the ITC. He argued that he was not a registered person and therefore was not entitled to avail the ITC. He contended that the complaint against him alone was not maintainable without arraigning the company.

The DGGI, while conceding that Nikita Industries had allegedly availed the ITC, argued that Bansal could still be prosecuted individually. It described him as the beneficiary and mastermind of the transactions and alleged that he had actively participated in the company's operations and GST-related matters.

The court rejected this argument. It held that the principle laid down by the Supreme Court in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd. applies to Section 137 of the CGST Act, which is pari materia with Section 141 of the Negotiable Instruments Act.

The Supreme Court had held that arraigning the company is imperative for maintaining prosecution based on vicarious liability. Applying that principle, the court observed that the offence of wrongly availing ITC had been committed by Nikita Industries.

The company was also the registered person entitled to avail ITC under Section 16 of the CGST Act. The court further noted that a demand-cum-show cause notice under Section 74 had been issued to the company and that Nikita Industries had filed an appeal against the adjudication order.

The court accordingly quashed the complaint and all subsequent proceedings arising from it. It, however, clarified that the respondents remained at liberty to proceed for the offence under Section 132 of the CGST Act in accordance with law.

For Petitioner: Advocate Deepak Gupta,

For Respondent/DGGI: Sourabh Goel, Special Public Prosecutor, DGGI with Advocates Anju Bansal and Geetika Sharma,