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Informist, Tuesday, Sept. 29, 2026

 

NEW DELHI – The Delhi High Court Tuesday held that the goods and services tax department can levy a penalty under the Central Goods and Services Tax Act, 2017, to 'any person' and this is not confined to only 'taxable persons' for availing fake input tax credit. These persons include anyone, whether or not registered or liable to be registered, who retains the benefit of transaction covered under Section 122(1) of the 2017 Act, said the court. The verdict will mean that penalties can be imposed on the actual mastermind and beneficiary, who may never have been registered under the GST regime, rather than shell entities, peon, driver or domestic help, when fraudulent input tax credit transactions are structured through the latter.

 

Further, Section 122(1A) of the 2017 Act regarding penalty on persons retaining the benefits of transaction applies prospectively and is attracted only in respect of transactions or acts committed on or after Jan. 1, 2021, irrespective of the date on which the show-cause notice is issued, it said. The government's amendment to bring Section 122(1A) was intended to govern the conduct falling within its sweep from the date on which the amended provision came into force on Jan. 1, 2021, it said.

 

Under the 2017 Act, a personal penalty equal to the tax evaded or fraudulent input tax credit is levied on any person who retains transaction benefits and at whose instance specified major offenses like fake invoicing or tax evasion are conducted. 

 

To construe 'any person' in Section 122(1A) as meaning nothing more than a 'taxable person' would, in substance, amount to reading into the provision words which the legislature consciously chose not to employ, said the court. Such a construction would also defeat the object of Section 122(1A) of the 2017 Act, said the court.

 

Fraudulent input tax credit transactions are often structured through fictitious or shell entities created in the names of persons having little or no connection with the underlying business, a peon, driver, domestic help, or even a person whose identity documents have been misused, said the court. In these cases, the actual orchestration of the transactions and retention of the financial benefit rests with persons operating behind such entities, it said. 

 

In such a scenario, if the expression 'any person' in Section 122(1A) were to be confined only to the 'taxable person', the entity or individual in whose name the GST registration stands, the consequence would be that the very person whose identity may have been misused could be proceeded against, said the court. In those cases, the actual mastermind and beneficiary, who may never have been registered under the GST regime, would escape the provision, it said. Such a construction would defeat rather than advance the object of the provision, it added.

 

The high court was hearing petitions filed by former directors of Worlds Window Impex India Pvt. Ltd. The tax department had confirmed a demand against the company on allegations that it had engaged in circular trading and had irregularly availed input tax credit amounting to INR 250 million through invoices allegedly issued without actual supply of goods. Besides confirming the demand and penalty against Worlds Window, the adjudicating authority had also imposed separate personal penalties of INR 250 million each against the former directors. Tuesday, the high court asked the appellate authority to determine, in light of the observations made by the court, as to whether the facts of each case satisfy the requirements of Section 122(1A) of the 2017 Act and whether the transactions attributed to each former directors fall within the period on or after Jan. 1, 2021.  End

 

Reported by Surya Tripathi

Edited by Avishek Dutta

 

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