The Delhi High Court has clarified that the expression ‘any person’ in Section 122(1A) of the CGST Act is not confined to a ‘taxable person’ under Section 2(107), and extends to every person, whether or not registered or liable to be registered, who satisfies the twin conditions of retaining the benefit of a fraudulent transaction and the transaction being conducted at his instance. The Court clarified that Section 122(1A) applies only to transactions or acts committed on or after Jan 01, 2021, the date the provision came into force, and cannot be invoked retrospectively merely because the SCN was issued after that date.
The Court further held that the monetary penalty under Section 122(1A), though civil in form, is penal in consequence, and that making its applicability dependent on the date of the SCN would offend Article 20(1) of the Constitution by permitting differential treatment of identical transactions based on administrative timing.
The Division Bench comprising Justice Anil Kshetarpal and Justice Bharat Parashar noted that Section 122(1A) of the Central Goods and Services Tax Act, 2017, operates only upon cumulative satisfaction of two conjunctive conditions, namely, that the person concerned has retained the benefit of a transaction covered by clauses (i), (ii), (vii) or (ix) of Section 122(1), and that such transaction was conducted at his instance.
The Court observed that the Legislature had consciously employed distinct expressions within Section 122, using ‘taxable person’ in sub-section (1), ‘any person’ in sub-sections (1A) and (3), and ‘any registered person’ in sub-section (2), and that such deliberate variation could not be treated as a legislative accident.
The Court further noted the close statutory parallel between Sections 122(1A) and 132, both amended simultaneously with effect from Jan 01, 2021, to address the dichotomy between civil and criminal consequences of fraudulent ITC transactions, and observed that Section 132, being a penal provision creating offences punishable with imprisonment, unquestionably attracts the constitutional protection under Article 20(1) of the Constitution.
Briefly, batch of petitions were filed challenging Show Cause Notices (SCNs) and consequential Orders-in-Original (OIOs) that had fastened personal liability by way of penalty under Section 122(1A) of the Central Goods and Services Tax Act, 2017. The petitions arose from a common SCN issued against M/s Worlds Window Impex India Private Limited, alleging that the company had engaged in circular trading and irregularly availed Input Tax Credit (ITC) of Rs. 24.99 crores through invoices issued without actual supply of goods.
By a common OIO passed under Section 74 of the Act, the Adjudicating Authority confirmed the demand and additionally imposed separate personal penalties of Rs. 24.99 crores each on three Petitioners under Section 122(1A), along with Rs. 25,000/- each under Section 125, on the ground that they had served as directors of the company at different points in time. The alleged transactions pertained to the period from July 01, 2017, to March 31, 2019, or at the highest up to Aug 30, 2020, with no alleged availment continuing after Jan 01, 2021, the date on which Section 122(1A) came into force.
