GST penalty can reach non-taxable beneficiaries, but only for transactions on or after January 1, 2021, Delhi High Court rules

The petitions challenged show-cause notices and orders-in-original imposing personal penalties under Section 122(1A) of the Central Goods and Services Tax Act, 2017 (“CGST Act”).

In the lead matters, the adjudicating authority confirmed a demand against a company for allegedly availing input tax credit (“ITC”) through invoices issued without actual supply and imposed separate penalties on three individuals who had served as the company’s directors.

The batch raised common questions about the reach and temporal operation of Section 122(1A).

Although an appeal under Section 107 was available, the Court entertained the petitions to determine those questions of law, while leaving the individual factual disputes to the appellate authorities.

Whether the expression “any person” in Section 122(1A) includes a person who is not a taxable person under the CGST Act.

Whether Section 122(1A), effective from 1 January 2021, applies to transactions or acts occurring before that date.

Section 122(1A) applies where a person both retains the benefit of a transaction covered by Section 122(1)(i), (ii), (vii) or (ix), and causes that transaction to be conducted; these are cumulative requirements.

The distinct expressions “taxable person” in Section 122(1), “any person” in Section 122(1A), and “registered person” in Section 122(2), read with the broad definition of “person” in Section 2(84), indicate that Section 122(1A) is not confined to taxable persons.

Section 122(1A) is penal in consequence and applies only to acts or transactions occurring on or after its commencement on 1 January 2021; the date of the show-cause notice does not determine its temporal reach.

In reaching this conclusion, the Court considered Article 20(1) of the Constitution and the parallel amendments to Sections 122 and 132, and adopted the temporal reasoning in *Amit Manilal Haria v. Joint Commissioner, CGST and Central Excise* while declining to follow the contrary approach in *Bhupender Kumar v. Additional Commissioner (Adjudication), CGST*.

The Court also relied on *Bharat Parihar v. State of Maharashtra* and its own decision in *Gurudas Mallik Thakur v. Commissioner of Goods and Service Tax* in construing “any person”.

The Court treated the wording of Section 122 as deliberate: limiting “any person” in Section 122(1A) to a taxable person would disregard the statutory distinction and could leave the individuals who orchestrate and benefit from transactions through a company beyond the provision’s reach.

That wider reach does not dispense with proof: the authority must establish both personal retention of the benefit and that the transaction was conducted at the person’s instance.

On timing, the Court reasoned that Section 122(1A) imposes a penal consequence for specified conduct, so its applicability must turn on when the underlying act occurred, not when the Department issued a notice.

The amendments to Sections 122 and 132 formed part of the same legislative exercise, and the Court considered it inconsistent to confine the amended criminal consequences under Section 132 to post-commencement conduct while applying the corresponding penalty under Section 122(1A) retrospectively.

The Court did not decide whether any particular petitioner met the statutory conditions or whether the relevant transactions occurred after the cut-off date.

It further held that Section 122(1A) applies only to acts or transactions occurring on or after 1 January 2021, irrespective of the date of the show-cause notice.

The petitions were disposed of with liberty to appeal under Section 107; the appellate authorities must determine the individual factual questions in accordance with the judgment.

Appeals filed within four weeks of the judgment are not to be dismissed as time-barred and must be considered on the merits.