The Delhi High Court resolved conflicting judicial interpretations regarding the scope and temporal application of Section 122(1A) of the Central Goods and Services Act, 2017, holding that the provision applies only to persons who retain benefit of fraudulent transactions and conduct such transactions, and operates prospectively from 01.01.2021 irrespective of Show Cause Notice date.
Background & Facts
The Dispute
The present batch of writ petitions challenges Show Cause Notices (SCNs) and consequential Orders-in-Original (OIOs) issued under Section 74 of the Central Goods and Services Act, 2017 (hereinafter 'Act of 2017'), which imposed personal penalties on petitioners under Section 122(1A) and Section 125 of the Act. The proceedings arose from allegations against M/s Worlds Window Impex India Private Limited ('the Company') of engaging in circular trading and irregularly availing Input Tax Credit (ITC) amounting to Rs. 24,99,88,069 through invoices allegedly issued without actual supply of goods.
Key Facts
- The alleged fraudulent ITC availing by the Company pertained to the period from 01.07.2017 to 31.03.2019, or at the highest up to 30.08.2020, with no alleged availment continuing after 01.01.2021 (para 8.7, 8.9)
- The SCN was issued on 27.07.2023 (para 5)
- The Adjudicating Authority passed the common OIO on 22.01.2025 under Section 74 of the Act of 2017 (para 5)
- Section 122(1A) was inserted by the Finance Act, 2020 with effect from 01.01.2021, pursuant to the 38th GST Council Meeting recommendation dated 18.12.2019 (para 8.3, 8.4, 30)
- The petitioners were directors of the Company at different points in time:
- Mr. Madhav Agarwal and Mr. Abhimanyu Sharma were appointed as directors only in August 2020 (after the alleged transaction period) (para 8.2)
- Mr. Anil Kumar Misra had resigned as director on 07.08.2020 (para 8.2)
- The petitioners were employee-directors, neither promoters nor shareholders of the Company, and no finding recorded that they were beneficiaries of the alleged transactions (para 8.2)
- The SCN and OIO did not attribute any specific act, omission, or role to the petitioners in the alleged fraudulent transactions, merely calling upon them to show cause why penalty should not be imposed under Section 122(1A) (para 8.1)
- The Company's statutory GST returns established that no outward supplies were made and no ITC was availed after 01.01.2021 (para 8.9)
Procedural History
- 27.07.2023: SCN issued against the Company and petitioners
- 22.01.2025: Adjudicating Authority passed OIO confirming demand of Rs. 24,99,88,069 against the Company and imposing personal penalties of Rs. 24,99,88,069 each on three petitioners under Section 122(1A), along with Rs. 25,000 each under Section 125
- Petitioners filed writ petitions challenging the OIO insofar as it pertained to them:
- W.P.(C) 13883/2026 (Parag Garg)
- W.P.(C) 16623/2024 (Dipanshu Aggarwal)
- W.P.(C) 16685/2024 (Rajesh Aggarwal)
- W.P.(C) 13363/2025 (M/s Sun Flame Trading Pvt Ltd & Ors)
- W.P.(C) 14149/2025 (Ashish Jain)
- W.P.(C) 14747/2025 (Rajnish Jain)
- W.P.(C) 14748/2025 (Avdhesh Mittal)
- W.P.(C) 14757/2025 (Sanjiv Kadian)
- W.P.(C) 14794/2025 (Amit Gupta)
- W.P.(C) 16821/2025 (Naresh Goel)
- W.P.(C) 5193/2025 (Anil Kumar Misra)
- W.P.(C) 5643/2025 (Madhav Agarwal)
- W.P.(C) 6062/2025 (MS Atlantic International Trading Pvt Ltd & Ors)
- W.P.(C) 6862/2025 (Madhav Agarwal)
- W.P.(C) 6913/2025 (Abhimanyu Sharma)
- W.P.(C) 9864/2025 (Parag Garg)
- W.P.(C) 1964/2026 (Parag Garg)
- W.P.(C) 53/2026 (Parag Garg)
- W.P.(C) 573/2026 (Parag Garg)
- 21.09.2026: Judgment reserved
- 29.09.2026: Judgment pronounced
Relief Sought
The petitioners sought quashing of the impugned OIOs insofar as they imposed personal liability under Section 122(1A) and Section 125 of the Act of 2017, on the grounds that: (i) Section 122(1A) does not apply to non-taxable persons; (ii) Section 122(1A) cannot be retrospectively applied to transactions preceding 01.01.2021; and (iii) the SCN/OIO violated principles of natural justice by lacking specific allegations against individual petitioners.
The Legal Issue
The principal questions for consideration were: (i) Whether it is permissible to order recovery of penalty under Section 122(1A) of the Act of 2017 against a non-taxable person; and (ii) Whether the penalty as envisaged under Section 122(1A) of the Act of 2017 applies prospectively to offences committed after 01.01.2021, the date on which the provision came into effect.
Arguments Presented
For the Petitioners
Learned counsel argued that Section 122(1A) requires cumulative satisfaction of two conditions: retention of benefit of a transaction covered under Section 122(1)(i), (ii), (vii) or (ix), and such transaction being conducted at the person's instance (para 22). They contended that the SCN and OIO contained no specific allegations establishing their individual role, participation, or culpability in the alleged fraudulent transactions, merely proceeding on their designation as directors (para 8.11). It was submitted that Mr. Madhav Agarwal and Mr. Abhimanyu Sharma were appointed as directors only in August 2020, after the alleged transaction period (01.07.2017 to 31.03.2019), while Mr. Anil Kumar Misra had resigned on 07.08.2020, rendering them incapable of having retained benefit or caused the transactions (para 8.2). Counsel emphasized that Section 122(1A) was introduced by the Finance Act, 2020 w.e.f. 01.01.2021 to fasten liability upon actual beneficiaries of fraudulent ITC transactions, not taxable persons in whose name registration exists (para 8.3, 30). Reliance was placed on Article 20(1) of the Constitution, arguing that a penal consequence cannot be imposed for acts committed before the provision came into force, citing CIT, New Delhi v. Vatika Township Pvt. Ltd., CCE, Ahmedabad v. Orient Fabrics (P) Ltd., and Ritesh Agarwal v. SEBI (para 8.5, 8.6). It was further argued that imposing equal penalties on the Company and each petitioner under Section 122(1A) for the same alleged transaction was arbitrary and disproportionate, lacking independent statutory basis or individual culpability (para 8.12).
For the Respondent
Learned counsel submitted that the applicability of Section 122(1A) and correctness of penalty imposed fall within the jurisdiction of adjudicatory and appellate authorities under the Act of 2017, and petitioners ought to avail statutory remedies under Sections 73/74, 107, 108, and 111 (para 9.1). Reliance was placed on Mafatlal Industries Ltd. v. Union of India and Ors. to argue that the matter involved an erroneous exercise of jurisdiction, not want of jurisdiction, amenable to correction via statutory appellate hierarchy (para 9.2, citing Embassy Property Developments Pvt. Ltd. v. State of Karnataka). It was contended that Section 122(1A) merely prescribes a penal consequence for contraventions already prohibited under the Act of 2017 and does not impair vested rights, citing Union of India v. Madan Gopal Kabra, Shanti Conductors (P) Ltd. v. Assam SEB, and Zile Singh v. State of Haryana (para 9.4, 9.5). Counsel argued that disputed questions of fact regarding petitioners' involvement in ITC availment require evidence appreciation and ought to be left to statutory adjudicatory process, citing Orissa Agro Industries Corporation Ltd. v. Ors. and Gurudas Mallik Thakur v. Commissioner of Goods and Service Tax (para 9.6, 9.9). It was further submitted that Section 122(1A) does not attract Article 20(1) protection as it imposes a civil/fiscal consequence, not criminal punishment, relying on SEBI v. Ajay Agarwal (para 9.7, 9.8). Lastly, counsel urged purposive construction of Section 122(1A) to prevent benefit retention from prohibited acts, citing Maxwell on Interpretation of Statutes and R v. Andrewes (para 9.11, 9.12).
The Court's Analysis
The Court began by noting the statutory scheme of Section 122, observing that sub-section (1) uses 'taxable person' while sub-sections (1A) and (3) use 'any person', and sub-section (2) uses 'any registered person' (para 24, 25). It emphasized that where the Legislature deliberately employs different expressions in the same provision, each must be given its distinct meaning (para 26, 27). Confining 'any person' in Section 122(1A) to 'taxable person' would defeat the provision's object, as fraudulent ITC transactions are often structured through shell entities where the actual beneficiary - whose identity may be misused - escapes liability while the innocent entity is proceeded against (para 28, 29). The legislative history confirmed this: Section 122(1A) was inserted via Finance Act, 2020 w.e.f. 01.01.2021 per the 38th GST Council Meeting's recommendation to address fake invoicing and fasten liability upon real beneficiaries over and above the taxable person (para 30, 31).
The Court found the Bombay High Court's view in Bharat Parihar v State of Maharashtra persuasive, agreeing that 'any person' includes non-taxable persons, but declined to follow Shantanu Sanjay Hundekari v. Union of India and Amit Manilal Haria v. Joint Commissioner, CGST, which confined liability to taxable persons (para 32, 33). It held that a juridical person like a company can act only through natural persons who manage its affairs; restricting Section 122(1A) to taxable persons would render the provision otiose in corporate fraud cases where the entity itself cannot retain benefit or direct transactions (para 32). The Court further noted that sub-section (3) of Section 122, dealing with aiding/abetting, uses 'any person' without restriction to taxable persons, providing no principled basis to read the identical expression differently in sub-section (1A) (para 33). This view was reinforced by this Court's own judgment in Gurudas Mallik Thakur v. Commissioner of Goods and Service Tax, which held that Section 122(1A) aims to hold accountable persons retaining benefit of transactions conducted through an inanimate corporate vehicle (para 34, 35), and the Gauhati High Court's judgment in Mayank Bansal v The Union of India, which expressly adopted this reasoning (para 35).
On temporal applicability, the Court observed a close statutory parallel between Section 122 and Section 132, where both were amended simultaneously by Finance Act, 2020 w.e.f. 01.01.2021 to align civil and criminal consequences (para 39, 40, 42). It stressed that Section 132's graded criminal consequences unquestionably attract Article 20(1) protection, confining its operation to conduct on/after 01.01.2021 (para 44). Holding that Section 122(1A) applies retrospectively while Section 132 does not would be incongruous, as both arose from the same legislative exercise targeting substantially the same conduct (para 44). The Court rejected the view that applicability depends on SCN date, noting that identical transactions could attract different consequences based solely on when proceedings commence, impermissibly making penal provision operation contingent on subsequent administrative acts (para 46, 47). It concluded that Section 122(1A), though civil in form, is penal in consequence and must bear a nexus with the date of the underlying act, citing Article 20(1) protection (para 45, 47, 48). Accordingly, Section 122(1A) applies prospectively only to transactions or acts committed on or after 01.01.2021, irrespective of SCN date (para 49). While acknowledging Bhupender Kumar v. Additional Commissioner (Adjudication) and Mayank Bansal v The Union of India held otherwise, the Court declined to follow this reasoning as it did not draw attention to Article 20(1) and appeared obiter (para 50, 51). Instead, it adopted the view from Amit Manilal Haria v. Joint Commissioner, CGST, invoking Article 20(1) to bar retrospective application to pre-01.01.2021 transactions (para 51).
The Verdict
The Court held that: (i) the expression 'any person' in Section 122(1A) of the Act of 2017 is not confined to a 'taxable person' and includes any person, whether or not registered or liable to be registered, who retains the benefit of a transaction covered under Section 122(1)(i), (ii), (vii) or (ix) and at whose instance such transaction is conducted (para 55.i); and (ii) Section 122(1A) applies prospectively and is attracted only in respect of transactions or acts committed on or after 01.01.2021, irrespective of the date of issuance of the Show Cause Notice (para 55.ii). Consequently, the petitions were disposed of with liberty to approach the Appellate Authority under Section 107 of the Act of 2017. The Court clarified that appeals filed within 4 weeks from the date of judgment shall not be dismissed on limitation grounds and shall be considered on merits (para 58). No specific monetary relief or penalties were set aside or modified, as the matter was remitted to the appellate authority for factual determination regarding benefit retention, transaction instance, and temporal applicability under the law declared in this judgment.
What This Means For Similar Cases
Scope of 'Any Person' Under Section 122(1A)
The judgment establishes that liability under Section 122(1A) CGST Act, 2017 extends beyond registered taxable persons to include any individual - regardless of GST registration status - who satisfies the twin conditions of retaining benefit from fraudulent ITC transactions and conducting such transactions. Practitioners must now scrutinize whether allegations against a director or officer specifically establish their personal role in retaining financial benefit and directing the impugned transactions, rather than relying solely on their designation. This is particularly relevant in cases involving shell companies or identity misuse, where the actual beneficiary may be unregistered while the nominal entity bears the tax liability.
Prospective Application Cut-Off Date
Section 122(1A) CGST Act, 2017 applies exclusively to transactions occurring on or after 01.01.2021, the date the provision came into force. The date of Show Cause Notice issuance is irrelevant for determining temporal applicability. Tax authorities cannot impose penalties under this section for alleged ITC irregularities preceding 01.01.2021, even if proceedings are initiated years later. This creates a clear temporal boundary: all SCNs issued for pre-01.01.2021 transactions must be challenged on grounds of retrospective application, shifting the focus of disputes to post-01.01.2021 conduct.
Evidentiary Burden on Revenue
The judgment places the evidentiary burden squarely on the revenue to prove both limbs of Section 122(1A): (a) that the person retained benefit of the transaction covered under Section 122(1)(i), (ii), (vii) or (ix); and (b) that such transaction was conducted at their instance. Mere designation as a director or officer, without specific allegations of personal involvement in the fraudulent scheme, is insufficient to attract liability. This requires revenue to move beyond corporate veil-piercing allegations and adduce concrete evidence linking individuals to the retention of financial benefit and active participation in conducting the impugned transactions.
