Court rules that penalties under Section 122(1A) apply prospectively and extend to non-taxable persons benefiting from fraudulent transactions
In a significant ruling, the Delhi High Court has clarified the scope and applicability of penalty provisions under the Central Goods and Services Tax (CGST) Act, 2017. The court addressed the interpretation of Section 122(1A) of the CGST Act, which deals with penalties for those benefiting from fraudulent transactions.
The court held that the term "any person" in Section 122(1A) is not limited to "taxable persons." This means that even individuals or entities not registered under GST, but who benefit from or instigate fraudulent transactions, can be held liable. The court emphasized that the legislative intent was to target the masterminds behind fraudulent invoicing schemes, often executed through shell companies or fictitious entities.
Furthermore, the court ruled that the penalty provisions under Section 122(1A) apply prospectively from January 1, 2021. This means that only transactions or acts committed on or after this date can attract penalties, irrespective of when the show cause notice was issued. The ruling aligns with the constitutional protection against retrospective penal provisions under Article 20(1) of the Indian Constitution.
The judgment was delivered in a batch of petitions challenging personal penalties imposed on directors and individuals associated with companies accused of engaging in fraudulent ITC (Input Tax Credit) transactions. The court allowed the petitioners to file statutory appeals, which are to be considered on merits, without being dismissed for limitation if filed within four weeks.
This decision aims to ensure that the real beneficiaries of tax evasion schemes are held accountable, while also respecting constitutional safeguards against retroactive penalties.
Bottom Line :
GST, Section 122(1A) of the CGST Act, 2017 - Expression "any person" is not confined to a taxable person and includes even a non-taxable/unregistered person, provided the twin conditions are satisfied, namely, such person retained the benefit of the transaction and the transaction was conducted at his instance - However, penalty under Section 122(1A) is prospective and can be imposed only for acts or transactions committed on or after 01.01.2021, irrespective of the date of issuance of show cause notice.
Statutory provision(s):
Central Goods and Services Tax Act, 2017 - Sections 122(1A), 132, 107, 122(1), 125; Constitution of India, 1950 - Article 20(1)
Parag Garg v. Commissioner, Adjudication, CGST Delhi West, (Delhi)(DB) : Law Finder Doc id # 2988223
