Petitioners Challenged Penalties Under CGST Act; Court Refrains from Opinion Pending Supreme Court Verdict
In a significant ruling, the Delhi High Court has directed multiple petitioners to seek appellate remedies concerning penalties imposed under the Central Goods and Services Tax Act (CGST), 2017. The court, led by Justices Anil Kshetarpal and Shail Jain, refrained from expressing an opinion on the applicability of Section 122(1) of the CGST Act to individuals who are not considered "taxable persons" due to a pending Supreme Court case.
The case involved twelve writ petitions filed under Article 226 of the Constitution. These petitions challenged an Order-in-Original dated February 6, 2025, which imposed penalties on several directors and managing directors for allegedly orchestrating a fraudulent scheme involving the availing and utilization of Input Tax Credit (ITC) without corresponding supplies. The penalties were levied under Sections 74, 76(2), and 122(1) of the CGST Act.
Petitioners argued that they were not "taxable persons" as defined under Section 122(1) and that no tax demand was raised against them personally. The High Court acknowledged that the issue of applicability of Section 122(1) to non-taxable persons is currently being considered by the Supreme Court in the case of Mukesh Kumar Garg v. Union of India.
In its order, the Delhi High Court emphasized judicial propriety and directed the petitioners to pursue their statutory remedy of appeal under Section 107 of the CGST Act. The court clarified that the appeals should be governed by the provisions of Section 107(6) as they stood before the amendment on October 1, 2025. Additionally, the court instructed the Appellate Authority to accept physical forms of appeal if electronic filing is hindered due to the lack of GST registration.
This ruling underscores the intricate relationship between judicial propriety and statutory remedies within the Indian legal framework, highlighting the role of appellate procedures in tax disputes. The High Court's decision not to delve into the merits of the petitioners' claims reflects a deference to the Supreme Court's ongoing deliberations, ensuring that lower courts do not preempt higher judicial reviews.
Bottom line:-
Central Goods and Services Tax Act (CGST), 2017 - Penalty under Section 122(1) cannot be imposed upon a person who is not a "taxable person." Judicial propriety warrants that the High Court refrains from deciding the issue pending before the Supreme Court. Petitioners relegated to the statutory remedy of appeal under Section 107 of the CGST Act.
Statutory provision(s):
Central Goods and Services Tax Act, 2017 Sections 74, 76(2), 107, 122(1)
