Author: Ashwarya Sharma, Advocate, Co-Founder & Legal Head, RB LawCorp
Published on: 29/06/2026
Introduction: Can Employees Be Personally Penalised for Corporate GST Violations?
The introduction of Section 122(1A) of the CGST Act, 2017, with effect from 1 January 2021, marked a significant shift in the GST enforcement framework. For the first time, the legislature sought to pierce the corporate veil and impose personal penal liability not merely upon the registered taxable person, but also upon individuals who cause the commission of specified offences and retain the benefit arising therefrom.
The legislative objective behind the provision was both understandable and necessary. The GST administration had increasingly encountered situations where large-scale fake invoicing networks were orchestrated by beneficial owners, shadow promoters, and mastermind operators who remained insulated from direct penal consequences by operating through layers of registered entities and nominee structures.
However, as frequently occurs with broadly worded penal provisions, the practical application of Section 122(1A) has often extended beyond its intended purpose. Across the country, tax authorities have invoked the provision not merely against alleged masterminds and beneficiaries, but also against employees, executives, and officers solely by virtue of their designation within a corporate structure.
It is against this backdrop that the judgment of the Hon’ble Bombay High Court in Amit Manilal Haria & Ors. v. Joint Commissioner, CGST & Central Excise [2026] 184 taxmann.com 119 (Bom.) assumes considerable significance.
The Court has unequivocally held that mere employment, even at the highest managerial levels, does not automatically attract penal liability under Section 122(1A).
Understanding Section 122(1A): A Derivative Penal Provision
Section 122(1A) occupies a unique position within the GST penal architecture.
Unlike Section 122(1), which directly penalises the taxable person committing specified statutory violations, Section 122(1A) operates as a derivative liability provision. Its operation is entirely dependent upon the predicate offences enumerated under clauses (i), (ii), (vii), and (ix) of Section 122(1).
These offences, by their very nature, relate to activities that only a taxable person can ordinarily undertake, such as:
- supplying goods or services without invoices;
- issuing invoices without actual supply;
- wrongful availment of input tax credit; and
- fraudulent passing of input tax credit.
The legislative rationale behind introducing Section 122(1A) was to address a significant enforcement gap whereby beneficial owners and masterminds behind fraudulent GST structures often escaped personal liability despite orchestrating the underlying transactions.
The provision was therefore designed to target the actual architects and beneficiaries of GST frauds—not every employee associated with the business.
The Facts Before the Bombay High Court
The controversy arose from proceedings initiated against M/s. Shemaroo Entertainment Limited, where extensive investigations were conducted by the GST authorities under Section 67 of the CGST Act.
During the course of investigation:
- searches were conducted;
- statements were recorded;
- summons were issued; and
- certain individuals were arrested.
Subsequently, a Show Cause Notice was issued not only against the company but also against its senior officers, namely:
- the Chief Financial Officer;
- the Chief Executive Officer and Director; and
- the Joint Managing Director.
The authorities proposed to impose penalties of approximately ₹133 crore each upon these individuals under Section 122(1A), resulting in a cumulative personal exposure of nearly ₹400 crore, despite the underlying disputed tax liability of the company itself being approximately ₹70 crore.
The officers challenged the proceedings before the Bombay High Court.
The Principal Arguments of the Petitioners
The Petitioners advanced several significant legal arguments.
First, they contended that Section 122(1A) derives its operation from Section 122(1), which itself applies only to taxable persons. Since the Petitioners were merely employees and not taxable persons, the provision could not be invoked against them.
Second, they argued that the proposed penalties were grossly disproportionate, as the individual penalties sought to be imposed exceeded the company’s own disputed tax liability several times over.
Third, the Petitioners submitted that Section 122(1A), having come into force only from 1 January 2021, could not constitutionally be applied to transactions pertaining to earlier periods, as such retrospective penalisation would violate Article 20(1) of the Constitution.
Fourth, reliance was placed upon the Bombay High Court’s earlier decision in Shantanu Sanjay Hundekari v. Union of India, wherein the Court had held that employees cannot be subjected to personal penalties merely because they occupy positions within the company hierarchy.
Finally, it was argued that Section 122(1A) is inherently derivative and cannot operate independently without satisfying the foundational requirements of Section 122(1).
The Revenue’s Defence
The Revenue argued that Section 122(1A) deliberately uses the expression “any person”, thereby extending its reach beyond registered taxable persons.
It was further contended that the Petitioners were not ordinary employees but occupied senior managerial positions and exercised substantial control over the affairs of the company.
According to the Revenue, the fraudulent transactions had been conceived, controlled, and executed under their supervision, thereby justifying invocation of Section 122(1A).
The Revenue also attempted to distinguish the earlier decision in Shantanu Sanjay Hundekari, arguing that the employee involved in that case did not occupy a managerial or controlling position.
The Bombay High Court’s Interpretation of Section 122(1A)
The Court undertook a detailed textual and structural analysis of Section 122(1A).
It observed that the provision contains two independent and cumulative requirements, both of which must be satisfied before penalty jurisdiction can arise.
The person sought to be penalised must:
- retain the benefit arising from the impugned transaction; and
- have caused or directed the transaction to be undertaken.
The Court held that these requirements are conjunctive and not alternative.
Consequently, unless both conditions are independently established, the jurisdictional foundation for invoking Section 122(1A) simply does not exist.
Section 122(1A) Cannot Operate Independently of Section 122(1)
Perhaps the most important aspect of the judgment lies in the Court’s interpretation of the phrase “any person” appearing in Section 122(1A).
The Revenue argued that these words confer an unrestricted scope upon the provision.
The Court rejected this submission.
It held that Section 122(1A) is not a standalone penal provision. Rather, it derives its existence and operation entirely from Section 122(1).
Since the offences enumerated under Section 122(1) are inherently attributable to taxable persons, the expression “any person” appearing in Section 122(1A) cannot be interpreted in isolation.
The Court observed that a contrary interpretation would produce incoherent and absurd consequences, permitting penalties to be imposed upon individuals disconnected from the statutory framework governing taxable persons.
Accordingly, the Court held that Section 122(1A) must always be interpreted in the context of the underlying offences committed by taxable persons.
Employees Cannot Be Penalised Without Proof of Personal Benefit
Applying these principles to the facts before it, the Court found no material whatsoever to establish that the Petitioners had personally retained any benefit arising from the impugned transactions.
The Court observed that merely holding positions such as:
- CFO;
- CEO;
- Director; or
- Joint Managing Director,
does not automatically establish personal enrichment or beneficial retention.
In the absence of evidence demonstrating that the individuals themselves retained the proceeds or benefits arising from the alleged contraventions, the essential jurisdictional requirement of Section 122(1A) remained unsatisfied.
Consequently, the penalties could not survive.
Reaffirmation of the Shantanu Sanjay Hundekari Principle
The Bombay High Court reaffirmed its earlier decision in Shantanu Sanjay Hundekari v. Union of India, wherein it had similarly held that employees cannot be personally penalised merely because of their association with the employer.
Importantly, the Revenue’s challenge against the Hundekari judgment had already been rejected by the Hon’ble Supreme Court.
The Court therefore treated the principle as binding precedent and applied it squarely to the present dispute.
Retrospective Penalisation Violates Article 20(1)
The Court also addressed the issue of retrospective operation.
Since Section 122(1A) came into force only on 1 January 2021, the Court held that its invocation for prior periods would amount to retrospective penal legislation.
Such retrospective penal consequences are expressly prohibited by Article 20(1) of the Constitution of India.
Accordingly, the invocation of Section 122(1A) for transactions predating its introduction was held to be unconstitutional.
Why This Judgment Matters
The decision in Amit Manilal Haria establishes several important principles for GST litigation:
- Section 122(1A) is a derivative and not an independent penal provision.
- The provision contains a mandatory two-fold test.
- Personal retention of benefit is an indispensable requirement.
- Mere designation or employment status does not create penal liability.
- Senior management positions do not automatically establish culpability.
- Retrospective application of Section 122(1A) is barred by Article 20(1).
- The expression “any person” must be interpreted in the context of the taxable person under Section 122(1).
These principles provide substantial protection against indiscriminate invocation of personal penalties under GST.
Conclusion
The Bombay High Court’s decision in Amit Manilal Haria is a significant reaffirmation of a fundamental principle of penal jurisprudence:
Personal liability cannot be imposed merely by virtue of one’s position within a corporate hierarchy.
Section 122(1A) was enacted to target the real beneficiaries and masterminds of GST fraud, not to create automatic vicarious liability for employees and corporate officers.
By insisting upon proof of both personal benefit and active involvement, the Court has restored an important degree of balance to GST enforcement.
Equally important is the Court’s reminder that even in the realm of complex fiscal statutes, constitutional guarantees against retrospective penalisation remain fully operative.
For practitioners and taxpayers alike, the judgment provides a clear roadmap for challenging overbroad and mechanically issued penalty proceedings under Section 122(1A) of the CGST Act.
📎 Attached PDF for detailed reading 👉
📎 Full Published Version: https://www.taxmann.com/research/gst-new/top-story/105010000000028577/mastermind-or-mere-employee-navigating-the-boundaries-of-penalty-jurisdiction-under-section-1221a-of-the-cgst-act-2017-opinion
(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)
