The GST regime, introduced in 2017, sought to create a unified indirect tax system while strengthening measures against tax evasion. To address emerging frauds such as fake invoicing and wrongful availment of ITC, Parliament expanded the penalty framework through the Finance Act, 2020 by inserting Section 122(1A), effective from 1 January 2021. Unlike Section 122(1), which applies to taxable persons committing specified contraventions, Section 122(1A) extends liability to any person who (i) retains the benefit of the impugned transaction and (ii) at whose instance the transaction was conducted. The provision aims to reach those who orchestrate or benefit from fraudulent GST arrangements without being the registered taxable person.
The scope of this provision came before the Bombay High Court in Shantanu Sanjay Hundekari v. Union of India, where the DGGI sought to impose a penalty of about ₹3,731 crore on a Senior Tax Operations Manager of the Maersk group. The petitioner challenged the notice, arguing that the statutory conditions under Section 122(1A) were not met. The Court accepted this contention and quashed the notice against him, holding that Section 122(1A) cannot be invoked against employees or authorized representatives merely because of their corporate role; its statutory prerequisites must be strictly established before personal liability can arise.
When the CGST Act came into force on 1 July 2017, Section 122 imposed penalties on taxable persons for specified offences such as issuing invoices without supply, availing ineligible input tax credit, and issuing false invoices. The provision primarily targeted the conduct of the registered taxable person. To address GST frauds involving shell companies, intermediaries, and persons operating behind the registered entity, Parliament inserted Section 122(1A) through the Finance Act, 2020. It extends penalty liability to any person who both retains the benefit of transactions covered under specified clauses of Section 122(1) and at whose instance those transactions were carried out.
The dispute required the Court to examine the interplay between different provisions of the CGST Act. Section 74, under Chapter XV, governs determination and recovery of tax not paid or wrongly availed due to fraud, wilful misstatement, or suppression. Section 122, in Chapter XIX, prescribes penalties for specified contraventions, while Section 137 attributes liability for company offences to persons responsible for its business, subject to statutory conditions. The Court held that these provisions operate in distinct statutory fields. Although the show cause notice was issued under Section 74, it also invoked Sections 122(1A) and 137 against the petitioner. The Court cautioned that demand proceedings cannot be conflated with penal or prosecutorial provisions without independently satisfying the statutory requirements of those provisions.
The case arose from a DGGI investigation into the Maersk group, alleging wrongful availment and passing on of Input Tax Credit (ITC). A show cause notice under Section 74 of the CGST Act was issued to several group companies and associated individuals, alleging fraud, wilful misstatement, and suppression of facts. The notice invoked Sections 122(1A) and 137 against him personally and sought to impose a penalty of approximately ₹3,731 crore, equivalent to the alleged tax liability of the companies. Contending that any liability belonged to the companies and not to an employee acting in the course of his duties, he challenged the notice before the Bombay High Court under Article 226 of the Constitution.
The proceedings were initiated under Section 74 of the CGST Act, which provides for determination of tax not paid, short paid, or wrongly availed due to fraud, wilful misstatement, or suppression of facts. The show cause notice also invoked Sections 122(1A), relating to penalties, and 137, concerning offences by companies.
The petitioner challenged the authorities’ jurisdiction to invoke these provisions against him personally. Rather than disputing the allegations against the corporate entities, he argued that the CGST Act did not permit personal liability to be imposed on an employee in the manner adopted by the Revenue.
The petitioner mounted a jurisdictional challenge, contending that Section 122(1A) does not impose automatic personal liability on every employee or officer of a company. He argued that the provision requires two independent conditions to be satisfied: (i) the person must have retained the benefit of the impugned transaction, and (ii) the transaction must have been conducted at that person’s instance. According to the petitioner, the show cause notice neither alleged nor established either requirement.
The petitioner also challenged the invocation of Section 137, arguing that it applies to offences committed by companies and governs corporate criminal liability. Since the proceedings were adjudicatory in nature under Section 74 for determination of tax liability, and not criminal prosecutions, Section 137 had no application. According to the petitioner, its inclusion in the show cause notice reflected a fundamental misunderstanding of the statutory framework.
The writ petitions raised important questions on the interpretation of the CGST Act, including:
Although the dispute concerned a single employee and show cause notice, it had wider implications for GST enforcement. Large-scale investigations often involve directors, authorised signatories, tax managers, finance executives, company secretaries, and compliance consultants. If mere participation in compliance were sufficient to attract liability under Section 122(1A), the provision would greatly expand personal liability under the GST regime.
A key aspect of the Bombay High Court’s judgment is that it did not examine the merits of the alleged GST fraud involving the Maersk group. Instead, it focused on whether the show cause notice disclosed the statutory basis for proceeding against the petitioner under Sections 122(1A) and 137 of the CGST Act. The Court emphasized that, at the stage of judicial review, the issue was not whether tax had in fact been evaded, but whether the jurisdictional conditions for imposing personal liability had been satisfied.
A key contribution of the judgment is its interpretation of the requirement that a person must “retain the benefit” of the impugned transaction. The Court found that the show cause notice contained no allegation that the petitioner had personally retained any such benefit; instead, the allegations were directed against the corporate entities. As a result, one of the essential jurisdictional requirements under Section 122(1A) was absent. The Court further clarified that Section 122(1A) operates in the context of taxable persons. Since the clauses of Section 122(1) to which it refers themselves apply to taxable persons, the person sought to be proceeded against under Section 122(1A) must also be a taxable person. An employee who is neither a taxable person nor in a position to retain the benefit of the transaction falls outside the provision.
The Court similarly held that the second requirement under Section 122(1A) is that the transaction must have been conducted at the person’s instance, which was not satisfied. The show cause notice contained no allegation that the petitioner had conceived, directed, initiated, or caused the impugned transactions. Instead, it appeared to assume that his role as an employee and authorised representative was sufficient to attract liability. Rejecting this approach, the Court emphasized that both statutory conditions must be independently satisfied. Section 122(1A) is therefore confined to persons who bear the specific statutory relationship to the impugned transaction contemplated by Parliament, and not to every individual associated with the taxable entity.
A central theme of the judgment is that employment does not, by itself, give rise to statutory liability. Although the petitioner was the Senior Tax Operations Manager and an authorised representative for GST matters, the Court held that these roles alone could not justify action under Section 122(1A).
The Court distinguished between performing professional duties on behalf of an employer and personally attracting liability under a penal provision. Routine functions such as signing GST returns, responding to notices, participating in audits, or representing a company before tax authorities do not, without more, establish personal liability.
The Court also examined the Revenue’s reliance on Section 137, which governs offences committed by companies and the circumstances in which persons responsible for their conduct may be held liable. Since the proceedings had been initiated through a show cause notice under Section 74, the Court found that the notice failed to explain how Section 137 could independently sustain proceedings against the petitioner.
The Court also rejected the notion of automatic vicarious liability under the CGST Act, observing that it would be “ill-conceivable” to interpret Sections 122 and 137 as making an employee liable for a company’s alleged statutory violations merely because of their employment. The Court noted that Indian fiscal statutes impose vicarious liability only where Parliament has expressly provided for it. Refusing to infer such liability by implication, it held that personal liability must arise strictly within the statutory framework. The judgment thus reinforces the principle that penal provisions cannot be expanded through judicial interpretation.
The Court also took note of the proposed penalty of approximately ₹3,731 crore, observing that it represented the liability alleged against the corporate entities rather than the petitioner. It described the attempt to impose such a penalty on an individual employee as “highly unconscionable and disproportionate” and accepted the petitioner’s contention that the notice appeared intended to threaten and pressurize him.
The judgment is likely to shape future GST proceedings involving company officers, authorised signatories, and employees. Its significance lies in reaffirming that personal liability under the CGST Act can arise only when the jurisdictional conditions prescribed by Parliament are specifically pleaded and established.
A significant aspect of the judgment is the Court’s refusal to imply vicarious liability into Sections 122 and 137 of the CGST Act. It held that such liability cannot be imposed in the absence of express legislative language, observing that penal provisions cannot be expanded beyond the scope enacted by Parliament. The judgment provides legal certainty to corporate officers and employees by clarifying that liability does not arise merely from their position within an organization. However, it does not prevent action where the specific statutory requirements for personal liability are established.
The Revenue challenged the Bombay High Court judgment before the Supreme Court. By order dated 24 January 2025 in SLP (C) Diary No. 55427/2024, the Supreme Court dismissed the Special Leave Petition, holding that there was no good reason to interfere with the High Court’s order. The Court, however, kept the pure question of law on the interpretation of Sections 122(1A) and 137 open for future consideration. The dismissal on facts nonetheless reinforces the protective value of the Bombay High Court ruling for employees who neither retain the benefit of the transaction nor cause it to be conducted.
A show cause notice under Section 74 cannot automatically invoke Section 122(1A) or Section 137 against an employee or authorised signatory. Both statutory conditions of Section 122(1A) — retention of benefit and conduct of the transaction at the person’s instance — must be specifically pleaded with supporting material. Mere designation as tax manager, authorised representative, or compliance officer is insufficient to attract personal liability. Demands that seek to fasten company-level tax or penalty liability on an individual employee can be challenged as unconscionable and disproportionate. Section 137, which deals with offences by companies, has no application in pure adjudication proceedings under Section 74. The judgment thus offers a strong jurisdictional defence in cases where the Revenue issues personal liability notices against employees without establishing the twin statutory requirements.
The decision in Shantanu Sanjay Hundekari v. Union of India represents an important contribution to the developing jurisprudence on personal liability under the CGST Act. By insisting upon strict adherence to the statutory language of Section 122(1A), the Bombay High Court reaffirmed that penal provisions cannot be expanded through implication or administrative convenience. The judgment is equally significant for its broader message. Effective tax enforcement and the protection of revenue are essential objectives of the GST framework, but those objectives must be pursued within the limits prescribed by Parliament.