The Division Bench of Justices G.S. Kulkarni and Aarti Sathe allowed writ petitions filed by Amit Haria, Hiren Gada and Atul Maru, quashing penalties of about ₹133.61 crore each imposed on them under Section 122(1A) of the Central Goods and Services Tax (CGST) Act.
The judgment clarifies the scope of personal liability under GST and raises broader questions about how enforcement actions against company officials are structured.
The dispute: personal penalties in a corporate GST probe
The case arose from a GST investigation into alleged wrongful availment of input tax credit (ITC) by Shemaroo Entertainment beginning July 2017. Authorities alleged that inadmissible ITC was claimed using invoices without underlying supply, and issued show-cause notices to both the company and its senior management.
While the company faced tax demands and penalties relating to about ₹70 crore of disputed ITC, tax authorities also imposed separate penalties of ₹133.61 crore each on the Chief Financial Officer, Chief Executive Officer and Joint Managing Director under Section 122(1A).
This effectively created a cumulative personal exposure of more than ₹400 crore for the executives — an unusual step that sparked debate among tax practitioners about the expanding use of personal liability provisions in GST enforcement.
What the High Court examined
At the heart of the dispute was the interpretation of Section 122(1A) of the CGST Act, a provision introduced from January 1, 2021, that allows penalties to be imposed on a person who causes a company to commit certain GST offences.
The court examined two key questions:
- Who can be penalised under Section 122(1A)
The tax department argued that the phrase “any person” allowed it to penalise individuals involved in the company’s decision-making. However, the court held that the provision cannot be read in isolation and must be interpreted in the context of Section 122(1), which applies to a “taxable person”. - Whether penalties can apply retrospectively
Since the provision came into force only in 2021, the court found that applying it to transactions dating back to 2017 would violate constitutional protections against retrospective penal action.
Courts have previously observed that Section 122(1A) applies only where there is proof that the person retained the benefit of the alleged contravention and directly caused it.
In this case, the bench found no findings establishing that the executives personally retained the benefit of the disputed ITC transactions.
Why the ruling matters for corporate executives
The judgment touches on a growing concern within India Inc.: the increasing tendency of enforcement agencies to extend corporate tax disputes into personal liability for directors and senior executives.
Three key takeaways emerge from the ruling:
1. Limits on vicarious liability under GST
The court made it clear that merely holding a senior management position is not enough to attract penalties under Section 122. Personal liability must be supported by clear statutory conditions and evidence of benefit or involvement.
2. Reinforcement of constitutional protections
By invoking Article 20(1) — which bars retrospective penal provisions — the ruling underscores that tax enforcement cannot bypass constitutional safeguards.
3. Impact on GST investigations and show-cause notices
The judgment could lead to closer scrutiny of how tax authorities frame proceedings against individuals, especially in cases involving alleged fake ITC networks or invoice-based investigations.
What it means for the tax department
The decision may also have implications for the GST enforcement strategy.
Over the past few years, authorities have increasingly relied on provisions such as Section 122(1A) to hold individuals accountable in large ITC fraud cases, particularly where companies are alleged to have used shell entities or bogus invoices.
However, the High Court’s interpretation suggests that such provisions cannot be invoked broadly without satisfying specific jurisdictional conditions — a point likely to influence ongoing and future litigation.
For the tax department, this could mean revisiting how personal liability is established in GST adjudication orders.
Limited financial impact on the company, but wider precedent
Shemaroo has indicated that the ruling will not have a material financial impact on its operations, as the penalties set aside were personal in nature rather than corporate liabilities.
Yet, the precedent may extend well beyond the company.
Tax experts say the judgment could become a reference point in disputes where directors, CFOs or other executives face personal penalties linked to alleged GST violations by companies.
In effect, the ruling signals that while the GST framework allows enforcement against individuals, such action must remain tightly aligned with statutory intent and constitutional limits — a balance that courts are increasingly being called upon to define.
