Directors Relegated to Section 107 Statutory Appeal as Penalty Issue Under Section 122(1) Is Sub-Judice Before Supreme Court

JUDGMENT

Anil Kshetarpal, J.- By way of this common judgment, this Court shall dispose of twelve (12) connected Writ Petitions preferred under Article 226 of the Constitution of India. The Petitioners assail the common Order-in-Original dated 06.02.2025 [hereinafter referred to as the „Impugned Order’], passed by the Additional Commissioner, CGST, Delhi West, imposing penalties under Sections 74, 76(2) and 122(1) of the Central Goods and Services Tax Act, 2017 [hereinafter referred to as the „CGST Act], read with the corresponding provisions of the State/Union Territory enactments and the Integrated Goods and Services Tax Act, 2017 upon them.

2. The Impugned Order arises from common adjudicatory proceedings involving sixty-one (61) companies/firms and seventy-one (71) individuals connected with them. With respect to six (6) firms, the matter has been kept pending in view of the order passed by the High Court of Punjab and Haryana. The Petitioners before this Court are either Managing Directors or Directors of the concerned companies.

3. The Petitioners were issued Show Cause Notices in the year 2020 [hereinafter referred to as the „SCNs’] in relation to the period from 01.07.2017 to 31.03.2019. The concerned companies were alleged to have fraudulently availed and utilised Input Tax Credit on the strength of invoices issued without any corresponding supply of goods.

4. Insofar as the Petitioners in their individual capacities are concerned, the SCNs did not propose any demand of tax against them. They were called upon to show cause as to why penalties should not be imposed upon them under Sections 74, 76(2) and 122(1) of the CGST Act for having allegedly masterminded the modus operandi involving generation, availment and utilisation of fraudulent Input Tax Credit.

5. By the Impugned Order, each of the Petitioners has been subjected to a penalty equivalent to the amount mentioned against his name. The particulars of the Petitioners and the penalties imposed upon them are as follows:

6. Heard learned counsel representing the parties at length and with their able assistance, perused the paper books.

7. The principal contention of the Petitioners is that Section 122(1) of the CGST Act applies only to a “taxable person”, whereas the Petitioners have neither been treated as taxable persons nor has any tax demand been raised against them in their individual capacities. The Petitioners have also questioned the invocation of Sections 74 and 76(2) of the CGST Act, contending that no tax was payable or collected by them personally.

8. Learned counsel for the Respondents, on the other hand, submits that the Impugned Order is appealable under Section 107 of the CGST Act and that all such contentions may be examined by the Appellate Authority.

9. The issue concerning the applicability of Section 122(1) to a person who is not a taxable person is presently pending consideration before the Supreme Court. The Supreme vide order dated 04.08.2025 in Special Leave to Appeal (Civil) No.18178/2025 captioned Mukesh Kumar Garg v. UOI 111 GST 341/101 GSTL 3 (SC), has passed the following order:

“1. Two primary contentions have been raised. First, Section 122(1) of the Central Goods and Services Tax Act, 2017 (for short ‘the Act’) would not be applicable to the petitioner as he is a non-taxable person. Secondly, the provisions of Section 122 (1A) of the Act which came into force w.e.f. 01.01.2021 cannot be applied retrospectively for the Assessment Years 2017- 2020.

2. Leave granted.

3. In the meanwhile, there shall be stay on the recovery of the amount directed to be deposited provided the appellant deposits 25% of the demand before the GST Department either through Electronic Ledger or through Cash Ledger.”

10. It needs to be clarified that only the first contention noticed in the aforesaid order bears upon the present batch of Petitions. Section 122(1A) was neither invoked in the SCNs nor employed in the Impugned Order against any of the Petitioners.

11. During the pendency of the present Writ Petitions, this Court delivered its detailed judgment dated 31.07.2026 in W.P.(C) 8414/2026 captioned Gaurav Jain v. Joint Commissioner (Appeals-II)   (Delhi). and held that the proviso to Section 107(6), as substituted with effect from 01.10.2025, does not govern an Appeal arising from adjudicatory proceedings initiated through an SCN issued before that date. Such an Appeal continues to be governed by Section 107(6) as it stood on the date of commencement of the adjudicatory proceedings.

12. It is also not in dispute that an Appeal under Section 107 of the CGST Act is maintainable against the Impugned Order.

13. The respective SCNs were issued to the Petitioners in the year 2020, much before the substitution of the proviso to Section 107(6) with effect from 01.10.2025. Consequently, the appellate remedy available to the Petitioners is governed by Section 107(6) as it stood on the dates of issuance of their SCNs.

14. The principal issue raised by the Petitioners concerning the applicability of Section 122(1) of the CGST Act to a person who is not a “taxable person” is presently under consideration before the Supreme Court. Judicial propriety, therefore, warrants that this Court refrain from expressing any opinion on the said issue. The Petitioners have, however, raised several other grounds which involve examination of their respective roles, the allegations levelled against them and the material relied upon by the Adjudicating Authority. These matters can appropriately be examined in the statutory appellate proceedings.

15. In view of the above, the present Writ Petitions are disposed of with the following directions:

16. It is clarified that this Court has not expressed any opinion on the merits of the contentions raised by either party. All the present Writ Petitions, along with the pending applications, are disposed of in the aforesaid terms.