Case Note & Summary
The petitioners, employees of M/s. Shemaroo Entertainment Limited, filed a writ petition challenging an order-in-original dated 1 February 2025 that imposed penalties on them under Section 122(1A) of the CGST Act and MGST Act for alleged fake input tax credit transactions by the company. The High Court examined the procedural history, including search actions, arrests, retracted statements, and show cause notices. It found that the penalty order lacked evidence of personal liability of the petitioners and suffered from procedural violations, such as inadequate specification of charges in the show cause notice. The Court quashed the penalty order, emphasizing the need for clear allegations and compliance with natural justice principles in penalty proceedings under the CGST Act.
Headnote
The High Court of Judicature at Bombay, in a writ petition under Article 226 of the Constitution of India, quashed an order-in-original dated 1 February 2025 that imposed penalties of Rs.1,33,60,60,889/- each on the petitioners under Section 122(1A) of the Central Goods and Services Tax Act, 2017 (CGST Act) and the Maharashtra Goods and Services Tax Act, 2017 (MGST Act) -- The petitioners, employees of M/s. Shemaroo Entertainment Limited, challenged the penalty order, which was based on allegations of fake input tax credit availed and passed on by the company -- The Court held that the show cause notice and subsequent proceedings failed to establish personal involvement of the petitioners in the alleged fraud, violating principles of natural justice and statutory requirements under the CGST Act -- The penalty was set aside, and the matter was remanded for fresh consideration with directions to issue a proper show cause notice if required
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Issue of Consideration: The Issue of whether the penalty imposed on the petitioners under Section 122(1A) of the CGST Act was legally sustainable given procedural lapses and lack of evidence of personal liability
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Final Decision
The High Court quashed the penalty order dated 1 February 2025, set aside the penalties imposed on the petitioners, and remanded the matter for fresh consideration with directions to issue a proper show cause notice if required
2026 LawText (BOM) (02) 106
Writ Petition No. 5001 of 2025
G. S. Kulkarni J. , Aarti Sathe J.
Mr. Abhishek A. Rastogi with Pooja M. Rastogi, Meenal Songire, Aarya More for Petitioners, Mr. Ram Ochani with Sangeeta Yadav for Respondents
Amit Manilal Haria, Hiren Uday Gada, Atul Hirji Maru
The Joint Commissioner, CGST & Central Excise, The Superintendent, CGST & CX, Range-V, Division V, Mumbai East Commissionerate
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Nature of Litigation: Writ petition challenging a penalty order under the CGST Act and MGST Act
Remedy Sought
Petitioners sought quashing of the penalty order and relief from personal liability
Filing Reason
Alleged procedural violations and lack of evidence linking petitioners to fake input tax credit transactions
Previous Decisions
Order-in-original dated 1 February 2025 imposed penalties; earlier proceedings included search actions, arrests, and retracted statements
Issues
Whether the penalty imposed under Section 122(1A) of the CGST Act on the petitioners was valid given the lack of personal involvement evidence
Whether the show cause notice and proceedings complied with principles of natural justice and statutory requirements
Submissions/Arguments
Petitioners argued that the penalty order was based on company actions without establishing personal liability
Respondents contended that the petitioners, as officers, were liable for the company's fraudulent transactions
Ratio Decidendi
Penalty under Section 122(1A) of the CGST Act requires proof of personal involvement in fraud or willful misstatement; show cause notices must clearly specify charges and provide adequate defense opportunity; violations of natural justice principles render penalty orders unsustainable
Judgment Excerpts
The operative portion of the impugned order passed against the petitioners is required to be noted
The petitioners were arrested for allegedly committing offences under Section 132(1)(b) and 132(1)(c) of the CGST Act
The statements of the petitioners recorded before the CGST authorities on 6 September 2023, were retracted on 7 September 2023
Procedural History
Search action initiated on 5 September 2023 under Section 67(2) of CGST Act -- Petitioners arrested and granted bail on 7 September 2023 -- Show cause notice issued on 2 August 2024 -- Order-in-original dated 1 February 2025 imposed penalties -- Writ Petition No. 5001 of 2025 filed challenging the order
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