3 Shemaroo Entertainment staffers get Bombay HC relief in GST case

The dispute originated from an input tax credit (ITC) issue involving Rs 70 crore, which tax authorities alleged Shemaroo had falsely claimed

The Bombay High Court granted interim relief to three employees of Shemaroo Entertainment Limited and stayed coercive action in connection with personal penalty demands of ₹400 crore under the goods and services tax (GST) regime.

 

Tax authorities had issued showcause notices to the employees and subsequently passed orders imposing these penalties under Section 122 (1A) of the Central GST (CGST) Act. The penalties were challenged on constitutional and procedural grounds.

 

According to Section 122(A) of the CGST Act, if a company commits a GST offence such as issuing fake invoices, availing ineligible input tax credit, or suppressing sales, any person who was in charge of or responsible for the offence — and who actually caused or helped commit it — can be penalised individually. 

 

This penal provision which came into force on January 1, 2021, applies to directors, managers, finance heads, or any employee who knowingly and actively participated in the wrongdoing. The penalty amount is equal to the tax amount evaded or wrongfully claimed, making it punitive in nature.

 

A division bench comprising Justice B P Colabawalla and Justice F P Pooniwalla found a prima facie case in favour of the petitioners and directed that no steps be taken against the employees until the matter is heard on merits. The next hearing is scheduled for June 10.

 

The dispute originated from an input tax credit issue of ₹70 crore, which tax authorities alleged that Shemaroo had falsely claimed. However, the tax department went beyond the company and imposed steep penalties of ₹133 crore on three employees and another ₹133 crore on the company itself. 

 

The department alleged that the employees were directly responsible for decisions that led to the tax irregularities.

  Appearing for the employees, senior tax counsel Abhishek A Rastogi argued that Section 122(1A) came into force only from January 1, 2021, and could not be applied retrospectively. He also pointed out inconsistencies between the showcause notices and final penalty orders, and stressed that the employees had not derived any personal financial benefit from the disputed transactions.

 

“The penalties imposed are grossly disproportionate, both in relation to alleged tax liabilities and the role of the employees. Such penalties contravene the principles of natural justice and proportionality,” Rastogi argued. 

 

The court also noted that while the disputed tax amount is only ₹70 crore, the quantum of penalty imposed in the common order is exorbitant and exceeds ₹500 crore. Accordingly, the principles of proportionality would also be tested in this case during the final arguments, Rastogi said.