The Delhi High Court ruled that the penalty for GST evasion under Section 122(1A) of the CGST Act, 2017 applies to "any person," regardless of whether they are taxable or non-taxable.
The Delhi High Court considered a petition by two former directors of a manpower recruitment company facing a ₹40.61 crore GST demand under Section 74. The Petitioners claimed they resigned in 2020 and were not liable under Sections 122 or 122(1A), citing Amit Manilal Haria. However, the department argued they were still active directors and highlighted that Section 122(1A) applies to “any person,” not just taxable persons, citing Bharat Parihar v. State of Maharashtra (2023).
The Division Bench of Justice Rajneesh Kumar Gupta and Justice Prathiba M. Singh observed, “The purpose of Section 122(1A) of the CGST Act is clearly to make persons who may be responsible for having created bogus invoices and having utilised ITC without the receipt of goods and services and for distributing ITC in contravention of Section 20 of the CGST Act. It can be seen that the manner in which companies function is that there is a management who would be taking the decisions on behalf of taxable persons. These companies being inanimate, the responsibility has, by the wisdom of the legislature, been fixed under Section 122(1A) of the CGST Act upon any person who retains the benefits of a transaction.”
The Court observed that there is no dispute regarding the Petitioners' position as directors of the company. However, determining their specific role, the extent of control and management exercised, and whether they derived any benefit are factual matters to be examined by the Appellate Authority based on the available records. The impugned order is appealable under Section 107 of the CGST Act.
The Court noted that penalties were imposed on several directors who were actively involved in the company, as per the impugned order. It held that the appropriate remedy for the Petitioners is to approach the Appellate Authority. Since the Petitioners, being non-taxable persons, were unable to file an appeal through the portal, the Court directed the Department to inform them within two weeks about the mechanism to file an appeal. The Petitioners must then file their appeal within 30 days of receiving the communication.
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