Bombay HC quashes ₹400-cr personal GST penalty on Shemaroo executives

Court rules Section 122(1A) of the CGST Act cannot be invoked against employees who are not taxable persons; bars retrospective application of the provision

In a significant ruling, the Bombay High Court on Wednesday set aside a Rs 400 crore personal penalty imposed by goods and services tax (GST) authorities on three senior executives of Shemaroo Entertainment Ltd, holding that Section 122(1A) of the Central Goods and Services Tax (CGST) Act cannot be invoked against employees who are not “taxable persons”.

 

A division bench of Justices G S Kulkarni and Aarti Sathe allowed the writ petition filed by Amit Manilal Haria, Chief Financial Officer; Hiren Uday Gada, Chief Executive Officer; and Atul Hirji Maru, Joint Managing Director. The court quashed the Order-in-Original dated February 1, 2025, to the extent it imposed liability on the individuals.

 

 

The Joint Commissioner, CGST and Central Excise, Mumbai East, had levied an identical penalty of Rs 133.61 crore on each executive under Section 122(1A) for alleged wrongful availment and passing on of input tax credit (ITC) amounting to about Rs 133.60 crore during FY18 to FY22.

 

In a 26-page judgment authored by Justice Kulkarni, the bench ruled that Section 122(1A) applies only to a “taxable person” as defined under Section 2(107) of the CGST Act — a person who is registered or liable to be registered under the law. Employees or officers acting in their official capacity do not qualify as taxable persons for company transactions, the court held.

 

The bench said two cumulative conditions must be satisfied: the individual must have retained the benefit of the transaction and the transaction must have been conducted at his or her instance. “We do not find any specific finding recorded in the impugned order fastening penalty on the petitioners that any benefit of the transactions covered under the said clauses was retained by the petitioners,” the court observed.

 

The judgment relied on the Bombay High Court’s earlier decision in Shantanu Sanjay Hundekari vs Union of India, which was upheld by the Supreme Court. It also held that Section 122(1A), which came into effect on January 1, 2021, cannot be applied retrospectively to the period from July 2017 to December 2020, as that would violate Article 20(1) of the Constitution.

 

The case arose from a CGST search conducted in September 2023 over alleged fake invoicing. The three executives were briefly arrested and later granted bail. Shemaroo Entertainment deposited Rs 12 crore under protest. While proceedings against the company will continue, the court granted complete relief to the executives from personal liability.

 

Tax expert Abhishek A Rastogi, who appeared for the petitioners, said the ruling reinforces that GST authorities cannot convert corporate tax disputes into personal liability cases without establishing that the individual is a taxable person and has personally retained benefit.