Whether Penalty can be levied on the employee of the company U/S 122(1A) of the CGST Act who is not directly involved in Day-to-Day affairs of the company and has not retained any benefit of the Transaction?
No, the Honorable Bombay High Court in the case of Shantanu Sanjay Hundekari v. Union of India and Ors [2024 TAXONATION 594 (BOMBAY)] allowed the writ petition and set aside the demand of penalty amount of Rs.3731 corresponding that the penalty is imposable only on a person under sub-section 1A of Section 122 of the Central Goods and Services Tax Act, 2017, who is responsible for the transaction conducted, is a taxable person and is in legal position to retain the benefit of tax on the transaction covered under the aforesaid provisions of sub-section (1) of Section 122 of the CGST Act. The Honorable Bombay High Court observed that Section 122 provides for a levy of penalty for certain offences by the taxable person. Also, sub-section (1A) of Section 122 of the CGST Act provides that the benefit of the transaction covered under clauses 0), (i), (vii), and clause (ix) of sub-section (1) and at whose instance such transaction is conducted, would be liable for penalty for an amount equal to the amount of tax evaded or ITC availed of or passed on. NB Further observed that, sub-section 1A would apply only to the taxable person, as it states that the aforesaid provisions of sub-section (1) of Section 122 would only be applicable in relation to taxable person as defined under Section 2(107) of the CGST Act, read with Section 2(94) of the CGST Act, any person who retains the benefit of transaction covered under aforesaid clause of sub-section (1) of Section 122 of the CGST Act. Further, noted that sub-section 1A of Section 122 of the CGST Act cannot be attracted with respect to the person who has not retained the benefit of transaction covered under the aforesaid provision. Further, noted that Section 137 of the CGST Act relating to prosecution would not be applicable when demand cum show cause notice is issued under Section 74 of the CGST Act. The Honorable Court opined that the Revenue Department has erred in raising the demand from the Petitioner and other employees when liability arises against the Maersk and the notice was issued to pressurize and threaten the Petitioner.
Author's Comments
This is the most celebrated case of recent times, where the case was argued by Mr. Harish Salve, Id. senior counsel. It is important to understand that the Proper officer has no jurisdiction to sit on the adjudication of an allegation of section 122(1A) till the offense of section 122(1) clause i), (i), (vii) or (ix) (invoice-credit-refund racket) is adjudicated. Without adjudication of the invoice-credit-refund racket, there is no investigative material to implicate the 'Master Mind' under section 122(1A) of the Act. The Petitioner could have resorted to preferring an application under section 67(10) of the GST Act read with section 165(5) of Cr.Pc. to the Commissioner of GST in response to SCN issued to this effect.
The allegation against the Petitioner is self-defeating, as the department has alleged that benefits of the GST evasion havebeen retained by the Petitioner and still no action under section 67 of the Act was taken to unearth where the money has gone and likewise no action under allied laws is also surprising. Moreover, the allegation of misclassification (tax @5% discharged not 18%) is not a subject matter of evasion of tax and there is no jurisdiction under section 67 to adjudicate such matters not involving evasion of tax.
Topic-Shantanu Sanjay Hundekari v. Union of India and Ors
Citation-2024 TAXONATION 594 (BOMBAY)
CA Ritesh Arora
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