Personal penalty under Section 122(1A) cannot be imposed on employees without proof of personal benefit retention.

The Petitioners are the CFO, CEO, and Joint Managing Director of M/s. Shemaroo Entertainment Limited

Following a search and investigation into alleged fake invoicing and circular trading, the Respondent authorities issued an Order-in-Original dated 1 February 2025

This order confirmed a penalty of ₹1,33,60,60,889/- each on the three Petitioners under Section 122(1A) of the CGST/MGST Act, 2017, for the period July 2017 to July 2023

The Petitioners challenged the order via a Writ Petition under Article 226, contending they are mere employees, not "taxable persons," and that the penal provision was applied retrospectively

The court primarily interpreted Section 122(1A) of the CGST Act, 2017, which imposes penalties on "any person" who retains the benefit of specific fraudulent transactions at whose instance they are conducted

This was read alongside the definitions of "person" under Section 2(84) and "taxable person" under Section 2(107)

The court relied heavily on the precedent Shantanu Sanjay Hundekari v. Union of India [2024(89) G.S.T.L. 62 (Bom.)], which established that Section 122(1A) applies only to persons who are "taxable persons" or retain personal financial benefits from tax evasion

Furthermore, the court applied Article 20(1) of the Constitution of India, which prohibits the retrospective application of penal laws

The Court reasoned that Section 122(1A) must be read in conjunction with Section 122(1); since the latter specifically targets "taxable persons" for violations like fake invoicing, the "any person" in sub-section (1A) must be understood in that context

The Court found that the Respondents failed to provide any evidence that the Petitioners, as employees, had personally retained any benefit from the alleged transactions or acted as "taxable persons" in their individual capacity

Following Shantanu Sanjay Hundekari, the Court held that fastening vicarious liability on employees for corporate tax debts is legally impermissible

Additionally, the Court noted that Section 122(1A) was introduced via the Finance Act 2020 and became effective only on 1 January 2021; thus, its application to transactions dating back to 2017 violates the constitutional protection against retrospective penalties under Article 20(1)

The Court allowed the Writ Petition, quashing and setting aside the Order-in-Original dated 1 February 2025 to the extent it imposed penalties on the Petitioners

The holding clarifies that personal penalties under Section 122(1A) cannot be sustained against employees without proof of personal benefit retention and cannot be applied to periods prior to 1 January 2021.