High Court Quashes Rs. 133.60 Crore Personal GST Penalties on Shemaroo Executives

The petitioners, Amit Manilal Haria (CFO), Hiren Uday Gada (CEO & Director), and Atul Hirji Maru (Joint Managing Director), were officers of Shemaroo Entertainment Limited. A search under Section 67(2) of the CGST Act was conducted for fake invoicing and wrongful availment/passing of ITC. The petitioners were arrested under Section 132 and later granted bail.

A show cause notice alleged wrongful ITC availment of Rs. 70.25 crore and ineligible passing of Rs. 63.35 crore for FY 2017-18 to 2021-22. Separate notices proposed a penalty under Section 122(1A). By Order-in-Original, the Joint Commissioner imposed a penalty of Rs. 133.60 crore each on the three petitioners, aggregating to over Rs. 400 crore. The petitioners approached the High Court under Article 226.

Issue Raised: Whether company officials who are not “taxable persons” can be penalised under the CGST Act, and whether the provision can be applied retrospectively for periods prior to 1 January 2021.

HC Held: The Court allowed the writ petition and quashed the show cause notices and Order-in-Original insofar as they related to the petitioners.

The Court held that Section 122(1A), though using the term “any person,” must be read in conjunction with Section 122(1), which applies to a “taxable person.” For a penalty under Section 122(1A), it must be shown that the person both retained the benefit of the transaction and that the transaction was conducted at his instance. These jurisdictional conditions were not established against the petitioners, who were merely employees and not shown to have personally derived any benefit.

The Court relied on its earlier ruling in Shantanu Sanjay Hundekari v. Union of India, where similar penalties on employees were set aside. The Special Leave Petition against that judgment was dismissed by the Supreme Court of India in Union of India v. Shantanu Sanjay Hundekari, keeping the question of law open but affirming the relief granted.

Also as Section 122(1A) came into force only from 1 January 2021, its application to earlier periods would violate Article 20(1) of the Constitution, which prohibits retrospective penal liability. The Court set aside the penalties, holding that the impugned action lacked jurisdiction.

To Read Full Judgment, Download PDF Given Below