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Written By: Apoorv Agarwal

The decision of the Bombay High Court (“Court”)in Amit Manilal Haria v. Joint Commissioner, CGST & Central Excise [2026 SCC OnLine Bom1510]marks a significant development in GST jurisprudence concerning the personal liability of company officials under Section 122(1A) of the Central Goods and Services Tax Act, 2017 (“CGST Act”). The judgment addresses the extent to which directors, chief executive officers, and chief financial officers may be penalised for alleged wrongful availment or passing on of input tax credit (“ITC”) by a company. The Court’s interpretation of Section 122(1A) provides important guidance on the limits of penal liability under the GST regime and the doctrine against automatic vicarious liability.

The petition arose from proceedings initiated against Shemaroo Entertainment Limited and its senior officials. The GST authorities alleged that the company had availed and passed on fake or ineligible ITC amounting to more than Rs. 133 crores through transactions involving fake invoices and circular trading. Based on these allegations, separate penalties of Rs.133.60 crores each were imposed upon the company’s Joint Managing Director, Chief Executive Officer, and Chief Financial Officer under Section 122(1A) of the CGST Act. The Petitioners challenged the legality and jurisdiction of these penalties before the Bombay High Court under Article 226 of the Constitution.

The principal issue before the Court was whether employees or officers of a company, who are not themselves “taxable persons” under the CGST Act, can be subjected to personal penalties under Section 122(1A) merely because they occupy managerial positions in the company. Also, whether Section 122(1A), which came into force on 1 January 2021, could be retrospectively applied to transactions dating back to 2017. 

The relevant portion of Section 122(1A) of the CGST Act, reads as follows:

“(1A) Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.”

The Petitioners argued that Section 122(1A) applies only to taxable persons and cannot be extended to employees acting in their official capacities. They contended that they neither retained any personal benefit from the disputed transactions nor conducted the transactions in their individual capacities. It was further submitted that the penalties imposed were grossly disproportionate, especially when the alleged tax liability itself was disputed. The Petitioners also relied heavily on the earlier Bombay High Court decision in Shantanu Sanjay Hundekari v. Union of India, (2024) 132 GSTR 346where similar proceedings against employees of a company had been quashed. 

On the other hand, the Revenue argued that Section 122(1A) uses the expression “any person” and therefore extends beyond taxable persons to include directors and officers who allegedly orchestrated the transactions. The authorities contended that the Petitioners occupied controlling positions within the company and actively participated in the alleged fraudulent conduct. The Revenue further asserted that the CGST Act did not permit reduction or apportionment of penalty once the statutory conditions were fulfilled. 

The Court analysed  Section 122 in a great detail. It observed that Section 122(1) specifically applies to a “taxable person” and enumerates various offences such as issuance of invoices without supply of goods, wrongful availment of ITC, and issuance of false invoices. The Court noted that Section 122(1A) must be read conjointly with Section 122(1), because the former derives its operation from the offences listed in the latter. 

The Court emphasised that Section 122(1A) contains two mandatory ingredients: first, the person must retain the benefit of the impugned transaction; and second, the transaction must have been conducted at such person’s instance. Unless both conditions are satisfied, jurisdiction under Section 122(1A) cannot be invoked. The Court found that the Revenue had failed to establish either of these conditions against the Petitioners. There was no material demonstrating that the Petitioners personally retained any benefit arising from the alleged fake ITC transactions. Nor was there any clear finding that the transactions were conducted at their individual instance rather than by the company itself. 

A crucial aspect of the judgment is the Court’s rejection of implied vicarious liability under the GST framework. The Court held that neither Section 122 nor Section 137 of the CGST Act creates an automatic principle of vicarious liability against employees or officers merely because they are associated with a company. The Court reiterated the reasoning adopted in Shantanu Sanjay Hundekari (supra), where it had previously held that employees cannot be personally penalised in the absence of explicit statutory conditions being satisfied. 

The Court also addressed the constitutional issue concerning retrospective application of penal provisions. Section 122(1A) was inserted through the Finance Act, 2020 and became operational from 1 January 2021. However, the show cause notices in the present case covered the period from July 2017 onwards. The Court held that imposing penalties for periods prior to 1 January 2021 would amount to retrospective application of a penal provision, which is prohibited by Article 20(1) of the Constitution of India. The Court reaffirmed the settled principle that no person can be subjected to a penalty greater than what was prescribed by law at the time the alleged offence was committed. 

Ultimately, the Bombay High Court quashed the show cause notices and the order-in-original insofar as they related to the Petitioners. The Court held that the proceedings suffered from a fundamental jurisdictional defect because the statutory preconditions under Section 122(1A) were not satisfied. 

The judgment is highly significant for several reasons. First, it reinforces the principle that penal statutes must be strictly construed. The decision prevents tax authorities from mechanically imposing massive penalties on company officials without satisfying the precise statutory ingredients. Secondly, the ruling limits the scope of vicarious liability under GST law and protects employees and officers from being personally targeted solely because of their positions within a company. Thirdly, the judgment strengthens constitutional safeguards against retrospective penalisation under Article 20(1). Finally, the decision promotes certainty and fairness in GST adjudication by insisting upon a clear jurisdictional foundation before personal penalties can be imposed.

The judgment also has wider implications for ongoing GST investigations involving allegations of fake invoicing and wrongful ITC availment. Tax authorities have increasingly sought to impose personal liability on directors and key managerial personnel. This ruling signals that such proceedings must be supported by concrete findings demonstrating personal retention of benefits and direct involvement in the impugned transactions. Mere designation or managerial control would not suffice. Consequently, the decision is likely to influence future adjudications and litigation concerning the scope of Section 122(1A).

The controversy surrounding Section 122(1A) is now likely to receive authoritative determination from the Hon’ble Supreme Court of India. In Mukesh Kumar Garg v. Union of India (SLP (C) 18178/2025), the Hon’bleSupreme Court has already granted leave on similar questions involving the applicability of Section 122(1A) to non-taxable persons and the retrospective operation of the provision. Although the Bombay High Court’s decision in Amit Manilal Haria(supra) presently provides substantial relief to company officials facing personal penalties, the final legal position will ultimately depend upon the Supreme Court’s interpretation of Section 122(1A). The pending proceedings before the Supreme Court therefore carry considerable importance for GST administration, corporate governance, and the future contours of personal liability under indirect tax law.