GST Penalty U/s 122(1A) Unsustainable Where Director Retains No Benefit: Bombay HC

Bhavana Jain Vs Union of India (Bombay High Court)

Bombay High Court: Penalty under Section 122(1A) unsustainable where Director has not retained benefit of transaction

The Petitioner is an Independent Director of the Company. The Company is the registered tax payer. There was an allegation that the Company has short paid GST on goods sold by it; basis a classification dispute. There was a demand of over Rs. 18 crores along with interest and penalty confirmed under Section 74 against the Company. A penalty of same amount came to be imposed on the Director under Section 122(1A) of the CGST Act. The same was challenged in writ.

The Hon’ble Bombay High Court granted stay of recovery against penalty. It noted that Section 122(1A) cannot be invoked against individual who could not have retained the benefit of the transaction. It notes that similar issue has been decided in the case of Shantanu Sanjay Hundekari; which has been confirmed by the Hon’ble Supreme Court as well. Directs revenue to take instructions.

Argued by Adv. Bharat Raichandani a/w Adv. Mahesh Raichandani i/b UBR Legal.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. At the request of Mr Satyaprakash Sharma, learned counsel appearing for Respondent Nos.3, 4 and 5, three weeks’ time is granted to file Reply.

2. Heard for ad-interim relief.

3. Our attention has been invited to the decision of the Coordinate Bench of this Court in the case of Shantanu Sanjay Hundekari vs. Union of India 2024(3) TMI 1277 wherein, it has been held that anindividual would not come within the definition of a person under Section 122 (1A) of the Central Goods and Services Tax Act, 2017 (“CGST Act” for short). The said decision has not been interfered with by the Hon’ble Supreme Court.

4. Mr Bharat Raichandani, learned counsel for the Petitioners has sought interim order of protection by contending that his client is not the Company but an individual who is an independent Director of the Company and therefore, would not come under the sweep of Section 122(1A).

5. After going through the decision of this Court and considering the facts and circumstances of the case, we find that a strong prima facie case is made out for granting ad-interim relief.

6. Stand over to 30th June 2026 to obtain instructions.

7. As an ad-interim measure, we direct that no coercive action shall be taken against the Petitioner, pertaining to the penalty in question, until further order.