In a significant legal development regarding GST penalties, the Delhi High Court has recently declined to pass a ruling on whether penalties under Section 122(1) of the Central Goods and Services Tax (CGST) Act, 2017 can be imposed on individuals who are not classified as “taxable persons.”
The Division Bench, comprising Justices Anil Kshetarpal and Shail Jain, decided to step back from the issue, noting that the exact legal question is currently pending before the Supreme Court of India.
The case involved a batch of twelve connected petitions filed by company directors and other individuals. These petitioners were hit with show-cause notices in 2020 and subsequently penalised under Sections 74, 76(2), and 122(1) of the CGST Act.
The core allegation from the tax department was that the companies associated with these individuals had fraudulently claimed and utilised Input Tax Credit (ITC) based on fake invoices without any actual supply of goods.
While no personal tax demand was raised against the petitioners, the tax department sought to penalise them directly, accusing them of being the masterminds behind the fraudulent ITC operations.
Arguments Raised by the Petitioners
The individuals challenged the penalties, arguing that Section 122(1) of the CGST Act only applies strictly to a “taxable person.” They pointed out that they were never treated as taxable persons in their individual capacity, nor was any personal tax demand issued against them.
Furthermore, they questioned the use of Sections 74 and 76(2), arguing that they had neither personally collected nor were liable to pay any tax.
In response, the Revenue Department argued that the penalty orders could simply be challenged through standard appeal procedures under Section 107 of the CGST Act before an Appellate Authority.
High Court’s Decision and Key Takeaways
The Delhi High Court observed that the primary legal question, whether Section 122(1) applies to a non-taxable person, is already under the Supreme Court’s scanner in the case of Mukesh Kumar Garg v. Union of India and Ors.
Citing judicial propriety, the High Court decided it was best to refrain from expressing an opinion while the apex court is deliberating the matter.
However, acknowledging that the petitioners had other arguments regarding their specific roles and the evidence used against them, the High Court directed the petitioners to file their appeals with the Appellate Authority to resolve those factual disputes.
| Case Title | Arun Kumar Jain vs. Additional Commissioner CGST Delhi West Commissionerate & Ors |
| Case No | W.P.(C) 2704/2025, CM APPL. 12866/2025 |
| Petitioner | Mr Abhishek Garg and Mr Naman Mehta |
| Respondent | Mr Anurag Ojha, Mr Dipak Raj, Mr Aryaman and Mr Aditya Chaudhary |
| Delhi High Court | Read Order |
