2025 (4) TMI 1236 - HC - GST

Levy of penalty u/s 122(1A) - relevant statute can be applied retrospectively for periods prior to its enforcement date of 1st January 2021 specifically for the period from July 2017 to December 2020 - HELD THAT - As far as ad-interim relief is concerned a prima facie case is made out for grant of ad-interim relief. Atleast prima facie there are substance in the argument canvassed on behalf of the Petitioners. It is not in dispute that Section 122 (1A) was brought on the statute book only with effect from 1st January 2021 and yet penalty is sought to be imposed on the Petitioners for a period much prior thereto. Also prima facie we find that one of the issues raised in the present Petition is squarely covered by a decision of this Court in the case of Shantanu Sanjay Hundekari 2024 (3) TMI 1277 - BOMBAY HIGH COURT . A strong prima facie case is made out - the balance of convenience is in favour of the Petitioners - Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter include:

a. Whether the penalty imposed under Section 122(1A) of the relevant statute can be applied retrospectively for periods prior to its enforcement date of 1st January 2021, specifically for the period from July 2017 to December 2020.

b. Whether the impugned Order, which extends penalty liability up to July 2023, is valid when the show cause notice only pertains to the period from July 2017 to March 2022, thereby raising the question of the Order exceeding the scope of the notice.

c. Whether the Petitioners, as individuals holding executive positions in the company, qualify as taxable persons under Section 122(1A) and whether they retained any benefit from transactions covered under clauses (i), (ii), (vii), or (ix) of sub-section (1) of Section 122, which is a precondition for imposing penalty under the said provision.

d. The applicability and binding nature of precedent established by a Division Bench of the same Court in a related matter, which addresses similar issues regarding Section 122(1A).

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Retrospective Application of Section 122(1A)

Relevant legal framework and precedents: Section 122(1A) was introduced into the statute with effect from 1st January 2021. The principle of prospective operation of penal provisions is well-established in law, whereby penal provisions are not ordinarily applied retrospectively unless expressly stated by the legislature. The Court referenced a prior Division Bench ruling in Shantanu Sanjay Hundekari vs. Union of India, which dealt with similar questions of retrospective application of Section 122(1A).

Court's interpretation and reasoning: The Court found prima facie merit in the Petitioners' contention that Section 122(1A) cannot be invoked for periods prior to its enactment date. The penalty demand for the period from July 2017 to December 2020 was thus prima facie without legal basis. The Court emphasized the prospective nature of the provision and the absence of any legislative mandate for retrospective application.

Key evidence and findings: The impugned Order imposed penalties for a period starting from July 2017, which predates the enforcement of Section 122(1A). The Petitioners demonstrated that the statutory provision was not in force during this earlier period.

Application of law to facts: Applying the principle of prospective operation, the Court held that the penalty could not be validly imposed for the period prior to 1st January 2021.

Treatment of competing arguments: The Revenue did not dispute the date of enforcement but sought time to file an affidavit in response. The Court, however, found the Petitioners' argument sufficiently strong to grant ad-interim relief.

Conclusions: The Court concluded that Section 122(1A) is prospective and penalties cannot be imposed for periods before its enforcement.

Issue (b): Validity of the Impugned Order Exceeding the Show Cause Notice Period

Relevant legal framework and precedents: Procedural fairness requires that an order should not go beyond the scope of the show cause notice issued. The principle of natural justice mandates that a party must be given notice of the case against it and an opportunity to respond within the parameters of the notice.

Court's interpretation and reasoning: The Court noted that the show cause notice pertained to the period from July 2017 to March 2022, whereas the impugned Order extended the penalty demand up to July 2023. This discrepancy prima facie violated the principles of natural justice.

Key evidence and findings: The Petitioners pointed out the extension of the penalty period in the Order beyond the notice period without fresh notice or opportunity to respond.

Application of law to facts: The Court found that the impugned Order's extension beyond the show cause notice period was not sustainable without proper procedural compliance.

Treatment of competing arguments: The Revenue was given an opportunity to file an affidavit to justify the extension, but the Court found the Petitioners' objection prima facie valid.

Conclusions: The impugned Order's extension beyond the show cause notice period was prima facie impermissible.

Issue (c): Status of Petitioners as Taxable Persons and Retention of Benefit

Relevant legal framework and precedents: Section 122(1A) applies to taxable persons who have retained benefits from certain transactions specified under clauses (i), (ii), (vii), or (ix) of sub-section (1) of Section 122. The legal question is whether individuals holding executive positions can be held liable under this provision absent evidence of direct benefit retention.

Court's interpretation and reasoning: The Petitioners contended that they are not taxable persons in their individual capacity and did not retain any benefit from the transactions. The Court noted that for Section 122(1A) to apply, there must be a clear link between the person and the benefit retained.

Key evidence and findings: The Petitioners occupy executive roles within the company but no evidence was presented to establish their personal retention of benefits from the transactions in question.

Application of law to facts: The Court found prima facie that the Petitioners could not be held liable under Section 122(1A) absent proof that they were taxable persons who retained benefit.

Treatment of competing arguments: The Revenue's position was not elaborated in the interim order, but the Court found the Petitioners' argument sufficiently strong to grant interim relief.

Conclusions: The Petitioners are prima facie not liable under Section 122(1A) as taxable persons retaining benefit.

Issue (d): Binding Nature of Precedent from Division Bench

Relevant legal framework and precedents: The Court recognized the binding effect of the Division Bench decision in Shantanu Sanjay Hundekari, which addressed the retrospective application of Section 122(1A) and related issues.

Court's interpretation and reasoning: The Court found that the issues raised in the present Petition were squarely covered by the earlier Division Bench ruling, reinforcing the Petitioners' contentions.

Key evidence and findings: The Petitioners relied on the said precedent to support their arguments against retrospective penalty and the scope of Section 122(1A).

Application of law to facts: The Court applied the precedent to the facts of the present case, strengthening the Petitioners' position.

Treatment of competing arguments: The Revenue was permitted to file an affidavit in reply, but the Court's prima facie view favored the Petitioners based on the precedent.

Conclusions: The precedent was held to be applicable and supportive of the Petitioners' claims.

3. SIGNIFICANT HOLDINGS

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