Mumbai: In a significant ruling clarifying the scope of personal liability under GST law, the Bombay High Court has set aside nearly ₹400 crore in penalties imposed by GST authorities on three senior executives of Shemaroo Entertainment Ltd, holding that employees acting in their official capacity cannot be treated as “taxable persons” under the Central Goods and Services Tax (CGST) Act.
The court allowed writ petitions filed by Chief Financial Officer Amit Manilal Haria, Chief Executive Officer Hiren Uday Gada and Joint Managing Director Atul Hirji Maru, thereby quashing show-cause notices and the Order-in-Original that had levied a penalty of ₹133.60 crore on each executive for alleged wrongful availment and passing of input tax credit (ITC) between FY2017-18 and FY2021-22.
Search, Arrest and Penalty Proceedings
The case originated from a CGST search conducted at Shemaroo in September 2023 over alleged fake invoicing and improper ITC claims. Authorities alleged that the company had wrongfully availed ITC of ₹70.25 crore and ineligible ITC of ₹63.35 crore had been passed on during the period under review. The three executives were arrested under Section 132 of the CGST Act and later granted bail.
Subsequently, separate show-cause notices were issued proposing penalties under Section 122(1A). The Joint Commissioner’s Order-in-Original confirmed penalties of ₹133.60 crore each on the executives, aggregating to more than ₹400 crore, prompting them to approach the High Court under Article 226.
Employees Not “Taxable Persons” Under CGST
In its ruling, the High Court held that Section 122(1A), which uses the expression “any person,” must be read in conjunction with Section 122(1) that applies to a “taxable person” — defined as an individual registered or liable to be registered under GST law. Employees carrying out company transactions in their official roles do not fall within that definition, the court said.
The bench further observed that for personal penalties under Section 122(1A), authorities must establish that the individual both retained the benefit of the transaction and that it occurred at his instance. These jurisdictional conditions were not demonstrated in the case, as the petitioners were merely company officers and there was no evidence they personally derived any benefit.
No Retrospective Application
The court also accepted the petitioners’ contention that Section 122(1A) — introduced with effect from 1 January 2021 — could not be retrospectively applied to transactions predating its insertion.
Accordingly, the High Court quashed the penalty orders and related proceedings insofar as they concerned the three executives, while leaving the underlying GST case against the company unaffected.
Implications
The judgment is expected to have wider ramifications for GST enforcement, particularly in cases where authorities seek to impose personal penalties on corporate officers for alleged tax irregularities by their companies. It reinforces the principle that liability under the CGST Act attaches primarily to the registered taxable entity, not employees acting without personal gain.
