GST UPDATE

Hon’ble Court:HIGH COURT OF DELHI
Case Title: Parag Garg & Ors. v. Commissioner, Adjudication, CGST Delhi West & Ors.
Petition No. & Citation: W.P.(C) 13883/2026

Hon’ble Judge(s)	Justice Anil Khetarpal and Justice Bharat Parashar
Date of Order	29 September 2026
Outcome	Appeal allowed in part

Brief Facts of the Case

The judgment concerned a batch of writ petitions filed before the Hon’ble Delhi High Court challenging Show Cause Notices and consequential Orders-in-Original by which personal penalties under Section 122(1A) of the CGST Act had been imposed upon individuals in connection with alleged fraudulent availment and passing on of ITC. The case arose from a SCN and an Order-in-Original passed under Section 74 against M/s Worlds Window Impex India Pvt. Ltd. The Department alleged that the company had engaged in circular trading and had irregularly availed ITC of approximately through invoices allegedly issued without actual supply of goods. Apart from the demand and penalty imposed upon the company, the adjudicating authority imposed personal penalties each upon three individuals under Section 122(1A), along with general penalty under Section 125. The personal liability was substantially founded upon their having served as directors of the company at different points of time. The controversy was therefore not merely about the existence of fraudulent ITC transactions at the company level, but about the circumstances in which personal penalty could be fastened upon an individual under Section 122(1A).

Relevant Section

Section 122(1A) of the Act of 2017

Question before Hon’ble Court

Whether penalty under Section 122(1A) can be imposed upon a person who is not a “taxable person” under the CGST Act?
Whether Section 122(1A), which came into force on 01.01.2021, can be applied to transactions or acts committed before 01.01.2021?

Brief Arguments by Petitioner

Neither the SCN nor the OIO attributes any specific act, omission, or role to the Petitioners in the alleged fraudulent transactions, and the SCN merely called upon them to show cause as to why penalty should not be imposed under Section 122(1A), without setting out any allegations against them individually.
Two directors were appointed as directors after the period in which the alleged transactions took place, while one director had already resigned as director . The Petitioners were employee-directors, neither promoters nor shareholders of the Company, and no finding has been recorded that they were beneficiaries of the alleged transactions.
Section 122(1A) is a new and independent penal provision introduced with effect from 01.01.2021, enacted to fasten penal liability upon the actual beneficiaries or masterminds of fraudulent ITC transactions.
Neither the Finance Bill, 2020 nor the Notes on Clauses conferred retrospective operation upon Section 122(1A), whereas several other provisions of the Finance Act, 2020 were expressly made retrospective from 01.07.2017. The provision, therefore, would operate only prospectively from 01.01.2021.
Relying upon CIT, New Delhi v. Vatika Township Pvt. Ltd. ((2015) 1 SCC 1), it was contended that where the Legislature prescribes a specific date for commencement of a penal provision, the tax administration cannot apply it to transactions preceding its enforcement.
Section 122(1A), having come into force only on 01.01.2021, could not be invoked in respect of transactions undertaken prior thereto, as retrospective application would offend Article 20(1) of the Constitution. Reliance was placed upon CCE, Ahmedabad v. Orient Fabrics (P) Ltd (2004) 1 SCC 597., Ritesh Agarwal and Anr. v. SEBI and Ors (2008) 8 SCC 205. and Amit Manilal Haria and Ors. v. Joint Commissioner, CGST and Central Excise and Anr 2026 SCC OnLine Bom 1510.
The alleged transactions pertained to the period from 01.07.2017 to 31.03.2019, or at the highest up to 30.08.2020, with no alleged availment continuing after 01.01.2021. Consequently, the subsequent issuance of the SCN and the OIO could not retrospectively create a penal liability.
Bhupender Kumar v. Additional Commissioner (Adjudication), CGST and Ors 2025 SCC Online Delhi 4848.was distinguishable, as that decision proceeded on the finding of a continuing process, whereas no such continuing availment was alleged in the present case.
The Company’s statutory GST returns establish that no outward supplies were made, and no ITC was availed after 01.01.2021. Consequently, there was no transaction after the commencement of Section 122(1A) to which the provision could be applied.
The jurisdictional requirements for invocation of Section 122(1A) are wholly absent. Neither the SCN nor the OIO alleges or establishes that any of the Petitioners retained any benefit, directed the transactions, or acted as the beneficiary or mastermind behind the alleged availment of ITC.
The impugned SCN and OIO are violative of the principles of natural justice, as they contain no specific allegations regarding the individual role, participation or culpability of any Petitioner. The adjudicating authority proceeded solely on the basis of their designation as directors and failed to consider their replies and submissions, rendering the OIO a non-speaking order suffering from non-application of mind.
The adjudicating authority has imposed penalties equal to the entire alleged inadmissible ITC not only upon the Company but also separately upon each of the three Petitioners under Section 122(1A), resulting in multiple penalties arising out of the same alleged transaction, without establishing an independent statutory basis or individual culpability for each Petitioner.

Brief Arguments by Respondent

The applicability of Section 122(1A) falls within the jurisdiction of the adjudicating and appellate authorities. Since no challenge has been raised to the constitutional validity of Section 122(1A), the Petitioner ought to avail the available statutory remedies. Such cases do not warrant exercise of writ jurisdiction so as to bypass the efficacious alternative remedy.
Section 122(1A) operates retrospectively because the conduct to which it applies may have commenced prior to its introduction. Further, the underlying acts, namely fraudulent availment or passing on of ITC and issuance or use of invoices without corresponding supply, were already prohibited under the Act of 2017. Section 122(1A) merely prescribes a specific penal consequence for such contraventions and does not impair any vested right of the taxpayer. Reliance was placed on Union of India v. Madan Gopal Kabra, Shanti Conductors (P) Ltd. and Anr. v. Assam SEB and Ors., and Zile Singh v. State of Haryana and Ors., to argue that a provision is not retrospective merely because some facts antecedent to its enactment are relevant to its operation; the determinative consideration is whether it affects completed transactions, vested rights or imposes a new disability in respect of past conduct.
Whether the Petitioners actually committed the alleged contraventions is a disputed question of fact requiring appreciation of evidence which is to be decided by the adjudicating authority.
Section 122(1A) does not attract the prohibition contained under Article 20(1), since the penalty thereunder is a civil/fiscal consequence of a statutory contravention and does not amount to punishment for a criminal offence. The underlying conduct was already proscribed under the Act of 2017, and Section 122(1A) merely provides for the fiscal consequence of such infraction. The subsequent prescription of penalty under Section 122(1A) does not amount to creation of an ex post facto offence or punishment within the meaning of Article 20(1). Accordingly, the challenge based on the constitutional proscription against ex post facto laws is misconceived.
The Petitioner is not entitled to discretionary relief under Article 226, particularly when the allegations concern fraudulent availment of ITC and the factual question of the person responsible for such availment requires examination on the basis of evidence
A person invoking the extraordinary and equitable jurisdiction under Article 226 must make full and candid disclosure of all material facts. In the absence of complete disclosure regarding the Petitioner’s alleged involvement in the disputed ITC transactions, the writ petition ought not to be entertained.
The principle of purposive interpretation applies equally to fiscal legislation, particularly where the provision is remedial in nature. Section 122(1A), read in the context of the statutory scheme governing fraudulent availment and passing on of ITC, should therefore be interpreted in a manner which advances the legislative purpose and suppresses the mischief sought to be remedied.

Findings and Judgement

Scope of “Any Person” under Section 122(1A)
The Court noted that the Legislature has consciously used different expressions in Section 122 (1), “taxable person”; “any person” in sub-sections (1A), and “any registered person” in sub-section (2), and therefore each expression must be given its distinct meaning. Therefore, the word “any person” in Section 122(1A) is not confined to a “taxable person. It extends to every person, whether or not registered or liable to be registered under the Act.

Twin Conditions for Invoking Section 122(1A)
The Court held that liability under Section 122(1A) arises only when two conditions are cumulatively satisfied. First, the person proceeded against must have retained the benefit of a transaction covered under clauses (i), (ii), (vii) or (ix) of Section 122(1); and second, such transaction must have been conducted at his instance. These conditions are conjunctive and must be independently established before penalty can be imposed upon an individual.

Applicability to Persons Acting Through Juridical Entities
The Court observed that a company, LLP, partnership firm or other juridical person is incapable of acting except through natural persons managing and controlling its affairs. Therefore, restricting Section 122(1A) only to the taxable person in whose name the GST registration exists would defeat the purpose of the provision. The provision is intended to reach the persons who actually retain the benefit of such transactions and cause them to be conducted at their insance.

Legislative Object of Section 122(1A)
The Court relied upon the legislative history of Section 122(1A), which was introduced pursuant to the recommendation of the 38th GST Council Meeting to address the menace of fake invoicing and to fasten liability upon the real beneficiaries of fraudulent transactions, over and above the taxable person in whose name the registration exists. Fraudulent ITC transactions are often structured through fictitious or shell entities in the names of persons having little or no connection with the business like drivers, peons etc, while the actual master minds remains unregistered.

On the second issue, the Court held that Section 122(1A) is prospective in operation and can be invoked only in respect of transactions or acts committed on or after 01.01.2021, when the provision came into force. The fact that the SCN may have been issued subsequently cannot enlarge the temporal operation of the provision.

Article 20(1) and Penal Consequence

The Court held that although the penalty under Section 122(1A) is civil in form and monetary in nature, it is nevertheless penal in consequence and is imposed for specified contraventions. Therefore, applying Section 122(1A) to an act committed before the provision came into force would result in imposing a penal consequence under a provision which was not in force at the relevant time and would offend the protection contained in Article 20(1) of the Constitution.

Date of Underlying Transaction, and Not Date of SCN, is Relevant
The Court specifically rejected the contention that applicability of Section 122(1A) should be determined with reference to the date of issuance of the SCN. The relevant date is the date of the underlying act or transaction.

Alternative Remedy under Section 107 Not a Bar in the Present Case
Since the petitions involved substantial and recurring questions of law concerning the interpretation and temporal applicability of Section 122(1A), on which divergent views had been expressed by different High Courts, the Court considered it appropriate to exercise its jurisdiction under Article 226.

Accordingly, the Court upheld the applicability of Section 122(1A) to “any person” satisfying the statutory conditions, while holding that the provision operates prospectively from 01.01.2021.
The Court specifically left open the factual questions for determination by the Appellate Authority. The Petitioners were also granted liberty to file appeals under Section 107.

Significant Case Laws Relied Upon

Case Law	Citation	Crux of the Judgment
Bharat Parihar v. State of Maharashtra & Ors.	(2023) 8 Centax 5 (Bom.)	Held that the expression “any person” in Section 122(1A) is wider than “taxable person” and can cover persons who are not registered under GST, subject to fulfilment of the statutory conditions.
Shantanu Sanjay Hundekari v. Union of India	(2024)17Centax 18 (Bom.)	Took a narrower view of Section 122(1A), particularly regarding employees/persons who neither retained the benefit nor were shown to have caused the transaction. The Delhi High Court did not accept this restricted interpretation of “any person.”
Gurudas Mallik Thakur v. Commissioner of Goods and Service Tax	2025 (98) G.S.T.L. 517 (Del.)	Recognised the distinction between “taxable person” and “any person” and observed that Section 122(1A) seeks to reach persons behind fraudulent transactions who retain the benefit and at whose instance the transaction is conducted.
Amit Manilal Haria & Ors. v. Joint Commissioner, CGST & Central Excise & Anr.	(2026)40Centax 100 (Bom.)	Held that Section 122(1A), introduced with effect from 01.01.2021, cannot be applied retrospectively to transactions occurring before that date. The Delhi High Court followed this principle on the question of temporal applicability.
Mayank Bansal v. The Union of India & 5 Ors.	WP(C)/24/2026	Held that “any person” is wider than “taxable person” and may include persons responsible for and benefiting from transactions carried out through juridical entities. The Delhi High Court agreed with the broader interpretation of “any person”, but differed on retrospective application.
Bhupender Kumar v. Additional Commissioner (Adjudication), CGST & Ors.	(2025)32Centax 302 (Del.)	Considered the relevance of the date of issuance of the SCN for applying Section 122(1A). The present Court did not accept the SCN-date approach and held that the date of the underlying transaction/act is relevant.
Union of India v. Shantanu Sanjay Hundekari & Anr.	(2025)27Centax 14 (S.C.)	The Supreme Court’s dismissal of the SLP did not amount to affirmation of the Bombay High Court’s interpretation; the legal issue remained open for consideration.

Comments

GST update /2026-27/0092

GST UPDATE

Brief Facts of the Case

Relevant Section

Question before Hon’ble Court

Brief Arguments by Petitioner

Brief Arguments by Respondent

Findings and Judgement

Significant Case Laws Relied Upon

Opinion

Author’s Comment

Post a Comment

Query