Section 122 of the CGST Act: Multiple Penalties, Vicarious Liability and the Expanding Reach of Section 122(1A)
Introduction
Penalty provisions under fiscal statutes have always occupied a delicate position. While they are designed to deter tax evasion and safeguard revenue, they simultaneously carry serious civil consequences. Under the GST regime, Section 122 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) has emerged as one of the most frequently invoked penalty provisions, particularly in matters involving fake invoices, wrongful availment of Input Tax Credit (“ITC”), circular trading and alleged tax frauds.
The insertion of Section 122(1A) with effect from 1 January 2021 fundamentally altered the penalty landscape under GST. Prior to its introduction, penalties under Section 122 were primarily directed at the taxable person who committed the offence. However, by introducing Section 122(1A), the legislature expanded the scope of liability beyond the taxable person and sought to bring within its fold those who orchestrate, facilitate or derive benefit from such transactions.
This amendment has generated several complex legal questions:
- Can a single transaction attract penalties under multiple clauses of Section 122(1)?
- Can penalties under Section 122(1) and Section 122(1A) simultaneously coexist?
- Can employees, directors and consultants be penalised under Section 122(1A)?
- Is Section 122(1A) a statutory recognition of vicarious liability?
- Can multiple persons be penalised under Section 122(1A) for the same transaction?
- Can Section 122(1A) be applied retrospectively to transactions undertaken before 1 January 2021?
- Does such an interpretation result in multiple punishments for a single offence?
These questions are increasingly surfacing in GST investigations and adjudication proceedings. Recent judicial pronouncements have begun addressing some of these concerns, although substantial uncertainty continues to persist.
This article attempts to analyse these issues through a detailed examination of the statutory framework, constitutional principles and emerging judicial trends.
I. Understanding the Architecture of Section 122
Section 122 forms part of Chapter XIX of the CGST Act dealing with “Offences and Penalties”. Unlike Sections 73 and 74 which primarily focus upon recovery of tax, Section 122 creates independent civil consequences for specified contraventions.
Broadly, Section 122 may be divided into three categories:
Section 122(1)
Applicable to a “taxable person”.
Section 122(1A)
Applicable to persons who retain the benefit of specified transactions and at whose instance such transactions are conducted.
Section 122(3)
Applicable to persons who aid, abet or otherwise participate in specified contraventions.
The distinction between these provisions is critical because they target different classes of persons and different forms of conduct.
II. Can One Transaction Attract Multiple Penalties under Section 122(1)?
Perhaps the most overlooked issue under GST is whether multiple clauses of Section 122(1) can be simultaneously invoked for the same underlying transaction.
Consider the following example:
A taxpayer creates a fake purchase transaction.
For implementing the scheme:
- invoices are issued without actual supply;
- fake ITC is availed;
- books of account are manipulated;
- false records are created.
The same transaction may potentially fall within:
Clause (ii)
Issuing invoices without supply.
Clause (vii)
Availing ITC without receipt of goods or services.
Clause (x)
Falsification of records or production of fake accounts.
The immediate question is whether separate penalties can be imposed under each clause.
The Revenue’s Possible Argument
The department may argue that every clause of Section 122(1) creates a separate statutory offence.
Issuing fake invoices is different from availing fake ITC.
Similarly, falsification of books is an independent misconduct.
Since each offence is distinct, separate consequences can follow.
Such an interpretation is often adopted in criminal jurisprudence where a single transaction may violate multiple statutory provisions.
The Taxpayer’s Counter-Argument
A closer examination of Section 122(1) reveals a significant difficulty with the departmental approach.
The provision does not prescribe separate penalties for separate clauses.
Rather, it prescribes a single penalty mechanism: “an amount equivalent to the tax evaded or input tax credit availed of or passed on.”
The penalty is linked to the tax effect and not to the number of clauses violated.
Therefore, once the wrongful ITC involved in a transaction is quantified, imposing multiple penalties under different clauses may effectively result in multiple punishments for the same tax consequence.
To illustrate:
Suppose fake ITC of ₹10 crore is availed.
The department alleges violation of:
- Clause (ii)
- Clause (vii)
- Clause (x)
If penalty of ₹10 crore is imposed under each clause separately, the taxpayer may end up facing penalties aggregating to ₹30 crore despite the alleged revenue implication being only ₹10 crore.
Such an interpretation would raise serious concerns regarding proportionality.
Principle Against Multiple Punishments
Although Article 20(2) of the Constitution technically applies to prosecution and punishment for the same offence, the broader constitutional principle remains relevant.
The law generally disfavours multiple punishments arising out of the same wrongful act unless the legislature expressly authorises such duplication.
In fiscal jurisprudence, courts have repeatedly recognised that penalty provisions must be interpreted strictly and cannot be expanded by implication.
Therefore, a strong argument exists that while multiple clauses may describe the conduct, only one penalty equivalent to the tax impact can ultimately survive.
This issue remains largely unexplored under GST and is likely to become an important area of future litigation.
III. Section 122(1A): A Legislative Shift from Taxpayer Liability to Beneficiary Liability
The introduction of Section 122(1A) marks a significant departure from traditional tax law principles.
Historically, tax statutes generally imposed liability upon the taxable person.
Section 122(1A), however, targets a different category of persons.
It seeks to penalise those who:
1. retain the benefit of specified transactions; and
2. cause such transactions to be undertaken.
The provision therefore moves beyond the person who formally undertakes the transaction and focuses upon the person operating behind the scenes.
In practical terms, the provision attempts to target:
- masterminds of fake invoice networks;
- controlling persons;
- beneficiaries of circular trading arrangements;
- hidden promoters;
- intermediaries who structure fraudulent arrangements.
Thus, the legislative focus shifts from “Who executed the transaction?” to “Who benefited from it and caused it to happen?”
This represents one of the most significant anti-evasion measures introduced under GST.
IV. Section 122(1A) and the Emergence of Vicarious Liability under GST
One of the most significant questions arising from Section 122(1A) is whether it introduces a form of statutory vicarious liability under GST.
Traditionally, tax liability is personal. The taxable person who undertakes the transaction bears the consequences of non-compliance. Courts have repeatedly held that vicarious liability cannot be presumed and must be specifically provided by statute.
The CGST Act itself contains an independent vicarious liability provision in Section 137 dealing with offences by companies. Under that provision, directors and persons in charge of the business may be prosecuted if the offence is committed with their consent, connivance or attributable neglect.
Section 122(1A), however, adopts a different approach.
Instead of referring to directors or officers, it uses the expression:
“Any person who retains the benefit of a transaction and at whose instance such transaction is conducted.”
The provision therefore does not create liability merely because a person occupies a managerial position. Rather, liability is sought to be imposed because of the person’s involvement in the transaction itself.
Consequently, Section 122(1A) is not a pure vicarious liability provision. It is a participation-based liability provision.
The distinction is important.
A Managing Director is not liable merely because he is a Managing Director.
An employee is not liable merely because he processed the entries.
A consultant is not liable merely because he advised the company.
Liability arises only when the statutory ingredients are independently established.
V. The Two Conditions under Section 122(1A)
The Bombay High Court in Amit Manilal Haria examined the language of Section 122(1A) in considerable detail. The Court observed that the provision contains two cumulative requirements:
First, the person must have retained the benefit of the transaction.
Second, the transaction must have been conducted at his instance.
The Court specifically noted that both conditions must co-exist and unless the two-fold requirement is satisfied, invocation of Section 122(1A) may not be legally sustainable.
The use of the word “and” assumes considerable significance.
The legislature could have used the word “or”.
It deliberately did not.
Thus, the department must establish both:
Condition 1 – Retention of Benefit
The person must derive some benefit from the transaction.
Condition 2 – Transaction Conducted at His Instance
The person must be the moving force behind the transaction.
The transaction should have occurred because of his instructions, directions, influence or active involvement.
The mere existence of one condition without the other may not be sufficient.
VI. Employees – Can They Be Penalised?
Consider the following scenario.
An employee identifies a fake supplier.
The employee introduces the supplier to management.
The company ultimately avails fake ITC.
The employee receives a special bonus.
Can the employee be penalised?
This issue has assumed considerable importance because departmental investigations often seek to implicate employees who were involved in the operational aspects of transactions.
The Decision in Shantanu Sanjay Hundekari
This judgment provides substantial support to employees.
The Bombay High Court interfered where enormous penalties were sought to be imposed upon employees of a company.
The Court was not prepared to accept a proposition that employees can automatically be saddled with liability merely because they worked for the company.
The decision recognises that the statutory requirements must independently exist against the concerned individual.
The Supreme Court subsequently declined to interfere.
The significance of this judgment lies in the fact that it prevents automatic extension of corporate liability to employees.
Does Amit Manilal Haria Change the Position?
Not entirely.
Many readers incorrectly interpret Amit Manilal Haria as laying down that employees can never be proceeded against.
That is not what the Court held.
The Court’s focus was on the absence of jurisdictional facts necessary for invoking Section 122(1A).
The judgment repeatedly emphasises the necessity of satisfying the statutory ingredients.
Therefore, the real position appears to be:
Mere Employee
No liability.
Employee Following Instructions
Generally no liability.
Employee Receiving Personal Benefit and Actively Designing the Scheme
Potential liability.
Employee Acting as a Front or Facilitator
Potential liability.
The dividing line is participation and benefit.
VII. Consultants, Advisors and Intermediaries
Perhaps the most controversial issue is whether consultants and advisors can be proceeded against under Section 122(1A).
Consider the following example.
A consultant:
- identifies fake entities;
- coordinates the invoice chain;
- structures the transactions;
- receives a percentage commission.
Can Section 122(1A) be invoked?
The answer appears to be yes.
In such a case:
- benefit is retained through commission;
- the transaction occurs at his instance;
- active participation is evident.
Consequently, the statutory ingredients may stand satisfied.
Professional Advice versus Participation
A distinction must however be maintained.
Suppose a consultant merely gives an opinion on taxability.
Suppose a Chartered Accountant merely files returns based upon documents supplied by the client.
Suppose an advocate renders a legal opinion.
Can they be penalised?
The answer should ordinarily be no.
Otherwise, every professional rendering advice would be exposed to penalty proceedings.
Such an interpretation would create unacceptable uncertainty in professional practice.
Accordingly, the department must establish:
- knowledge;
- participation;
- benefit;
Mere advisory involvement should not be sufficient.
VIII. Can Both Management and Consultant Be Penalised?
This is perhaps the most difficult issue under Section 122(1A).
Consider the following example:
Managing Director designs the arrangement.
Consultant structures it.
Employee executes it.
All three derive benefit.
Can all three be penalised?
A literal reading of Section 122(1A) suggests that the answer may be yes.
The provision uses the expression:
“any person”
It does not use the expression:
“the person”
Therefore, multiple persons may potentially fall within the provision.
The Practical Problem
This interpretation gives rise to extraordinary consequences.
Suppose fake ITC involved is ₹10 crore.
The company is penalised under Section 122(1).
The Managing Director is penalised under Section 122(1A).
The consultant is penalised under Section 122(1A).
The employee is penalised under Section 122(1A).
The aggregate penalty may become ₹40 crore.
This despite the fact that the disputed ITC is only ₹10 crore.
Such multiplication of penalties raises serious concerns regarding proportionality.
The legislature perhaps intended to catch all beneficiaries.
Whether it intended cumulative penalties of this magnitude remains debatable.
Future courts may be required to examine whether such an interpretation results in arbitrary consequences.
IX. Retrospective Application of Section 122(1A)
This is likely to become one of the most litigated issues in GST jurisprudence.
Section 122(1A) came into force on:
1 January 2021
Yet many notices seek to invoke the provision for periods beginning from July 2017.
This raises a fundamental constitutional issue.
Can a person be penalised under a provision which did not exist when the alleged transaction occurred?
Article 20(1) of the Constitution
Article 20(1) provides:
No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence.
It further prohibits imposition of a greater penalty than what existed at the time when the act was committed.
This principle reflects one of the oldest doctrines of criminal jurisprudence:
Nullum crimen sine lege.
No offence without law.
Does the Principle Apply to Fiscal Penalties?
The department may argue that Section 122(1A) imposes a civil consequence and therefore Article 20(1) is inapplicable.
However, courts have consistently treated penal provisions differently from procedural provisions.
A procedural amendment may operate retrospectively.
A penal amendment is generally presumed to operate prospectively unless the legislature expressly indicates otherwise.
The Finance Act, 2020 contains no indication that Section 122(1A) was intended to operate retrospectively.
Therefore, a strong constitutional argument exists that the provision can only apply from 1 January 2021 onwards.
The Argument Raised in Amit Manilal Haria
The petitioners specifically argued that Section 122(1A) was brought into force only with effect from 1 January 2021 and therefore could not be applied to prior periods. The challenge was founded upon Article 20(1) and the settled principle that penal provisions cannot ordinarily operate retrospectively.
This issue remains open and is likely to shape future litigation.
X. Can There Be Multiple Punishments for One Offence?
A recurring theme running through Section 122 jurisprudence is the possibility of repetitive penalties.
The following combinations are becoming increasingly common:
- Section 74 penalty;
- Section 122(1) penalty;
- Section 122(1A) penalty;
- prosecution under Section 132;
- proceedings under Section 137.
The cumulative impact can be staggering.
The issue is not merely statutory.
It is constitutional.
Tax administration undoubtedly requires deterrence.
However, deterrence cannot become disproportionate punishment.
The law must distinguish between:
- principal offender;
- beneficiary;
- facilitator;
- employee;
- professional advisor.
Failure to maintain these distinctions may transform Section 122(1A) from an anti-evasion provision into an instrument of indiscriminate liability.
XI. Judicial Analysis: Drawing the Line Between the Principal Offender and the Facilitator
The most difficult aspect of Section 122(1A) is not its language but its application.
Every fake invoice case generally involves a chain of participants:
- the taxable person who avails the credit;
- the supplier issuing invoices;
- directors approving the arrangement;
- employees executing the instructions;
- consultants or intermediaries facilitating the transaction.
The central issue before courts has increasingly become:
At what point does involvement become liability?
Recent decisions indicate that courts are attempting to strike a balance between protecting revenue and preventing indiscriminate penal action.
A. Shantanu Sanjay Hundekari – Mere Employment Cannot Attract Penalty
Perhaps the strongest protection available to employees emerges from the Bombay High Court’s decision in Shantanu Sanjay Hundekari.
The petitioners were employees of a company alleged to have engaged in wrongful GST transactions. Enormous penalties were imposed upon them under Section 122(1A).
The fundamental argument advanced by the petitioners was simple:
They were employees acting in the course of employment and were not beneficiaries of the transaction.
The Court granted relief and prevented mechanical extension of penalty liability.
Principle Emerging from the Judgment
The judgment recognises an important distinction.
Every employee involved in a transaction is not automatically a participant in the offence.
Merely because:
- emails were exchanged;
- documents were processed;
- entries were made;
- instructions were carried out,
does not mean the employee becomes liable under Section 122(1A).
There must be something more.
The department must establish independent involvement satisfying the statutory requirements.
Why the Judgment is Important
The significance of the decision lies not merely in its outcome.
It prevents Section 122(1A) from becoming a provision under which every person associated with a company becomes liable.
Otherwise:
- accountants,
- junior executives,
- clerical staff,
- compliance personnel,
would automatically become targets of penalty proceedings.
The Court effectively rejected such an interpretation.
B. Amit Manilal Haria – Relief Because Conditions Were Not Established
The Bombay High Court’s decision in Amit Manilal Haria is frequently cited by both taxpayers and the department.
However, both sides often read more into the judgment than what it actually says.
The Court did not hold that directors, employees or other persons can never be proceeded against.
Nor did it hold that Section 122(1A) is unconstitutional.
Instead, the Court focused on the statutory requirements.
The Court observed that the provision contemplates:
1. retention of benefit; and
2. transaction conducted at the person’s instance.
Unless both conditions exist, the jurisdictional foundation for invoking Section 122(1A) may be absent.
The Hidden Significance of Amit Manilal Haria
The real importance of the judgment lies in what it leaves open.
The Court never said that employees or intermediaries are immune.
Instead, it implicitly recognises that if evidence demonstrates:
- active participation;
- retention of benefit;
- decision-making authority;
- orchestration of the transaction,
liability may potentially arise.
Thus the judgment should not be understood as a blanket exemption.
It is better understood as a warning to the department:
Prove the ingredients first.
C. Reconciling Shantanu Sanjay Hundekari and Amit Manilal Haria
At first glance, the two decisions may appear to favour employees.
However, neither judgment establishes absolute immunity.
The combined principle emerging from both decisions is:
Mere Employment = No Liability
Mere Processing of Documents = No Liability
Mere Presence in Corporate Structure = No Liability
But:
Active Design of Scheme + Personal Benefit = Possible Liability
Receipt of Commission + Facilitation = Possible Liability
Control Over Transaction + Benefit = Possible Liability
In other words, the focus shifts from designation to conduct.
D. The Consultant Problem
Perhaps the most controversial category under Section 122(1A) is consultants and advisors.
Consider three different scenarios.
Scenario 1
A Chartered Accountant files GST returns based upon records provided by the client.
Can penalty be imposed?
Probably not.
The professional merely performs a compliance function.
No evidence exists of benefit or orchestration.
Scenario 2
A consultant advises on tax positions which are subsequently disputed by the department.
Can penalty be imposed?
Again, the answer should ordinarily be no.
Difference of legal opinion cannot become a penal offence.
Otherwise every tax dispute would expose professionals to personal liability.
Scenario 3
A consultant:
- identifies fake suppliers;
- structures the arrangement;
- coordinates the transactions;
- receives commission linked to fake ITC.
Can penalty be imposed?
Here the answer becomes significantly different.
The consultant is no longer acting as a professional advisor.
He effectively becomes part of the transaction itself.
In such circumstances:
- benefit exists;
- causation exists;
- participation exists.
The statutory ingredients may therefore stand satisfied.
E. Can Both the Management and Consultant Be Penalised?
This is perhaps the most fascinating unanswered issue under GST.
Consider the following facts:
Managing Director conceives the scheme.
Consultant designs it.
Employee executes it.
All receive benefits.
Can all three be penalised?
Revenue’s Argument
The provision uses:
“any person”
Therefore every person satisfying the statutory conditions can be penalised.
Nothing in Section 122(1A) restricts the department to one beneficiary.
Consequently:
- director,
- consultant,
- intermediary,
can all be proceeded against simultaneously.
Taxpayer’s Counter-Argument
Such an interpretation can lead to absurd results.
Assume:
Wrongful ITC = ₹10 crore.
Company penalty = ₹10 crore.
Director penalty = ₹10 crore.
Consultant penalty = ₹10 crore.
Employee penalty = ₹10 crore.
Total penalty = ₹40 crore.
The amount recovered becomes several times larger than the alleged tax impact.
This raises concerns of:
- proportionality;
- fairness;
- legislative intent.
Future courts may need to determine whether Section 122(1A) was intended to create cumulative liability or merely identify the real beneficiary.
F. Relationship Between Section 122(1A) and Section 137
A comparison with Section 137 provides useful guidance.
Section 137 specifically deals with offences by companies.
It requires:
- consent;
- connivance; or
Thus, liability under Section 137 is derivative.
The person becomes liable because of his connection with the company.
Section 122(1A) operates differently.
Liability is personal.
The person is not liable because he is a director.
He is liable because he himself satisfies the statutory ingredients.
This distinction is likely to become increasingly important in future litigation.
G. Judicial Trend Emerging from Recent Cases
The emerging judicial trend may be summarised as follows:
- Courts are reluctant to impose automatic liability.
- Designation alone is insufficient.
- Department must prove benefit.
- Department must prove causation.
- Department must establish active participation.
- Mere employment does not create liability.
- Mere professional advice does not create liability.
- Penalty provisions must be interpreted strictly.
- Jurisdictional facts cannot be presumed.
These principles appear consistently across recent litigation and indicate that courts are moving towards a more nuanced interpretation of Section 122(1A).
H. The Larger Constitutional Question
Ultimately, the debate surrounding Section 122(1A) is not merely about fake invoices.
It concerns a larger constitutional principle.
Should liability be imposed because a person is associated with a transaction?
Or should liability arise only where clear evidence demonstrates:
- benefit,
- participation,
- knowledge,
- causation?
The recent decisions suggest that courts are increasingly favouring the latter approach.
If this trend continues, Section 122(1A) may evolve into a carefully targeted anti-evasion provision rather than a sweeping mechanism for imposing liability upon everyone connected with a disputed transaction.
XII. Section 122(1A) versus Section 122(3): Are We Invoking the Wrong Provision?
One of the most neglected aspects of GST penalty jurisprudence is the relationship between Section 122(1A) and Section 122(3).
In practice, departmental notices often invoke Section 122(1A) against employees, consultants and intermediaries without examining whether Section 122(3) is the more appropriate provision.
This distinction assumes significance because the ingredients of the two provisions are fundamentally different.
Section 122(1A)
Section 122(1A) targets a person who:
1. retains the benefit of a transaction; and
2. at whose instance the transaction is conducted.
The focus is upon the beneficiary and mastermind.
Section 122(3)
Section 122(3) covers a person who:
- aids;
- abets;
- assists;
- acquires possession;
- transports;
- stores;
- conceals;
- deals with goods liable to confiscation.
The focus is upon facilitation.
Why This Distinction Matters
Consider the following example.
A consultant prepares documentation for a fake invoice arrangement.
He receives a professional fee.
However, the transaction is neither conducted at his instance nor does he retain the benefit of the transaction itself.
In such circumstances, the consultant may not satisfy Section 122(1A).
However, the department may still argue that he aided or abetted the contravention under Section 122(3).
Similarly, an employee carrying out instructions may not satisfy Section 122(1A) but may be alleged to have facilitated the transaction.
Therefore, every facilitator is not necessarily a beneficiary.
Likewise, every beneficiary is not necessarily a facilitator.
The distinction must be maintained.
XIII. Can Section 122(1A) Be Used to Pierce the Corporate Veil?
Perhaps the most far-reaching consequence of Section 122(1A) is its potential use as a statutory tool for piercing the corporate veil.
Ordinarily, a company is treated as a separate legal entity.
Its liabilities are distinct from those of its directors, shareholders and employees.
This principle has been recognised for over a century in corporate law.
Section 122(1A), however, introduces a significant departure.
If interpreted broadly, the provision allows the department to move beyond the company and identify:
- ultimate beneficiaries;
- controlling minds;
- real decision makers;
- hidden promoters.
In effect, the provision seeks to answer a question frequently encountered in GST investigations:
Who actually benefited from the fraud?
A New Form of Substance over Form?
Historically, GST proceedings focus upon the taxable person.
Section 122(1A) shifts attention towards economic reality.
The inquiry now becomes:
- Who designed the scheme?
- Who controlled it?
- Who gained from it?
This resembles the doctrine of lifting the corporate veil, although the provision does not expressly use those words.
Potential Risks
Such an interpretation also carries dangers.
If applied indiscriminately, every director may be presumed liable merely because of his position.
This would effectively nullify the principle of separate corporate personality.
Therefore, courts are likely to insist upon clear evidence of:
- benefit;
- participation;
- decision-making authority.
Without such evidence, invocation of Section 122(1A) may become vulnerable to challenge.
XIV. Multiple Penalties and the Doctrine of Proportionality
A fundamental constitutional concern arising from Section 122 is the possibility of disproportionate punishment.
Consider a simple illustration.
Wrongful ITC involved: ₹10 crore.
Penalty imposed upon:
Company – ₹10 crore.
Managing Director – ₹10 crore.
Consultant – ₹10 crore.
Intermediary – ₹10 crore.
Total exposure: ₹40 crore.
The question is obvious.
Did Parliament really intend a ₹40 crore penalty for a ₹10 crore transaction?
Constitutional Concerns
The Supreme Court has repeatedly recognised proportionality as an integral facet of Article 14.
Although tax statutes enjoy considerable latitude, punitive provisions cannot be interpreted in a manner leading to manifestly arbitrary consequences.
A penalty provision must:
- achieve a legitimate objective;
- have a rational nexus with the objective;
- not impose excessive burdens.
Where cumulative penalties become grossly disproportionate to the alleged revenue impact, constitutional concerns may arise.
Comparative Perspective
Under many fiscal statutes, multiple contraventions arising from the same transaction are often consolidated for determining punishment.
GST jurisprudence is still evolving on this issue.
However, future courts may have to examine whether multiple penalties under Sections 122(1), 122(1A), 122(3) and Section 74 can coexist without violating proportionality principles.
XV. Strict Interpretation of Penalty Provisions
Another important principle that should guide interpretation of Section 122 is the doctrine of strict construction.
Penalty provisions occupy a special position in law.
They are neither ordinary charging provisions nor procedural provisions.
They impose adverse civil consequences.
Consequently, courts have consistently held that such provisions must be construed strictly.
The Supreme Court in several decisions has reiterated that where two interpretations are possible, the interpretation favouring the taxpayer should ordinarily prevail in penal matters.
This principle becomes particularly important while interpreting expressions such as:
- “retains the benefit”;
- “at whose instance”;
- “causes to commit”;
- “facilitates”.
These expressions cannot be interpreted expansively merely because the transaction appears suspicious.
The department must establish the statutory ingredients with clarity.
XVI. Article 20 and Retrospective Penalties – A Stronger Constitutional Challenge
The challenge to retrospective invocation of Section 122(1A) may be stronger than generally appreciated.
The provision came into force on 1 January 2021.
Yet notices frequently attempt to invoke it for transactions undertaken between 2017 and 2020.
The constitutional difficulty is obvious.
Prior to 1 January 2021:
- beneficiaries were not covered;
- facilitators were not covered in the present manner;
- the liability itself did not exist.
Imposing such liability retrospectively would effectively punish a person for conduct which did not attract that consequence when undertaken.
That is precisely what Article 20(1) seeks to prevent.
Can Revenue Laws Escape Article 20?
The department may argue that GST penalties are civil consequences.
However, courts have repeatedly recognised that merely describing a provision as “civil” does not automatically remove constitutional protections.
Where a provision is punitive in nature and imposes substantial monetary consequences, constitutional scrutiny remains available.
The retrospective application debate under Section 122(1A) is therefore far from settled.
XVII. Conclusion – The Next Frontier of GST Litigation
Section 122(1A) represents one of the most powerful anti-evasion tools introduced under GST.
However, every expansion of governmental power inevitably raises questions regarding constitutional limits.
The future of Section 122 litigation is likely to revolve around five central questions:
1. Can one transaction attract multiple penalties?
2. Can employees be penalised?
3. Can consultants be penalised?
4. Can multiple persons simultaneously be treated as beneficiaries?
5. Can Section 122(1A) be retrospectively invoked?
The answers to these questions will determine whether Section 122 evolves into a carefully calibrated anti-evasion mechanism or a provision capable of imposing limitless liability upon every person remotely connected with a disputed transaction.
The emerging judicial trend appears encouraging. Courts are increasingly insisting upon proof of benefit, causation and participation rather than permitting mechanical invocation of Section 122(1A).
That approach preserves the balance between effective tax administration and fundamental principles of fairness — a balance that lies at the heart of every modern tax system.
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