Shantanu Sanjay Hundekari vs. Union of India [Bombay High Court dated 28 March 2024]

Bench: Justice G.S. Kulkarni & Justice Firdosh P. Pooniwalla

Petitioners:

1. Shantanu Sanjay Hundekari
2. Vikas Agarwal
3. Yogesh Agarwal
4. Mamta Gupta

Respondents:

1. Union of India (Ministry of Finance)
2. State of Maharashtra (Finance Department)
3. Director General of GST Intelligence (Ahmedabad Zonal Unit)
4. Additional/Joint Commissioner of Thane Commissionerate (GST Department)

Background of the Case

• The petitioners were employees of M/s. Maersk Line India Pvt. Ltd. (MLIPL), a subsidiary of Maersk A/S, a Denmark-based shipping company.
• The Director General of Goods and Services Tax Intelligence (DGGI) issued a demand-cum-show cause notice on 19 September 2023.
• The notice sought to impose a penalty of ₹3,731 crores on the petitioners under Section 122(1A) and Section 137 of the CGST Act, 2017.
• The penalty was based on allegations that Maersk wrongly availed and utilized ₹1,561 crores in Input Tax Credit (ITC), leading to a total evasion of ₹3,731 crores (including interest and penalties).
• The petitioners, as employees, were accused of aiding and abetting this evasion.

Key Legal Provisions Discussed

1. Section 122(1A) of the CGST Act, 2017

• This section states that any person who retains the benefit of an evasion transaction and at whose instance the transaction was conducted shall be liable to a penalty equivalent to the tax evaded or input tax credit availed.
• The government contended that the petitioners, being responsible employees, retained the benefit of GST evasion committed by Maersk.

2. Section 137 of the CGST Act, 2017 (Offenses by Companies)

• This section holds that if an offense under the Act is committed by a company, every person who was in charge and responsible for the business at that time shall also be held liable.
• The petitioners were accused under this section as power of attorney holders of Maersk for GST compliance matters.

Arguments by the Petitioners

1. Employees cannot be held personally liable for corporate tax liability
   • The petitioners argued that they were only employees, not decision-makers of Maersk.
   • They did not personally benefit from the alleged tax evasion.
   • Section 122(1A) applies only to taxable persons, and they were not taxable persons under GST law.
2. Misuse of Section 137 (Offenses by Companies)
   • The petitioners contended that Section 137 applies only to persons actually responsible for running the company.
   • As employees and not directors or owners, they had no control over Maersk’s business operations.
   • Their role was limited to assisting in tax compliance.
3. Show Cause Notice Issued Without Jurisdiction
   • The petitioners challenged the validity of the show cause notice, arguing that it was issued without jurisdiction and lacked legal basis.
   • The Revenue Department wrongly applied Sections 122(1A) and 137, even though the petitioners were neither taxable persons nor responsible for the business.
4. Harassment and Intimidation Tactics by the GST Department
   • The petitioners alleged that the show cause notice was issued to intimidate and pressurize them.
   • The massive penalty of ₹3,731 crores was disproportionate and meant to discourage them from assisting Maersk in legal proceedings.

Arguments by the Government (Revenue Department)

1. Petitioners were responsible for Maersk’s GST Compliance
   • The Revenue Department argued that the petitioners held Power of Attorney for Maersk regarding GST matters.
   • They were aware of the alleged evasion and assisted in tax compliance, making them liable for penalties under Section 122(1A).
2. Burden of Proof Lies with the Petitioners
   • The government contended that the petitioners should respond to the show cause notice rather than challenging its validity in court.
   • They argued that the show cause notice should be adjudicated in due course.

Court’s Findings and Analysis

1. Section 122(1A) Does Not Apply to the Petitioners
   • The court ruled that Section 122(1A) applies only to taxable persons.
   • The petitioners were not taxable persons under the CGST Act.
   • They did not retain any financial benefit from the alleged GST evasion.
   • Therefore, Section 122(1A) could not be invoked against them.
2. Section 137 (Offenses by Companies) Was Wrongly Invoked
   • Section 137 applies only to persons responsible for the company's business.
   • The petitioners were employees, not business owners or decision-makers.
   • The show cause notice wrongly clubbed them with Maersk's liabilities.
3. Show Cause Notice Was Issued Without Proper Jurisdiction
   • The Revenue Department had no legal authority to issue such a notice against employees.
   • The demand of ₹3,731 crores from employees was unreasonable and arbitrary.
   • The show cause notice was declared invalid and quashed.
4. Harassment and Intimidation Recognized by the Court
   • The court acknowledged that the Revenue Department issued the notice to pressurize the petitioners.
   • Demanding such a huge penalty from employees was disproportionate and unconscionable.

Final Judgment & Orders

• Show Cause Notice Quashed: The Bombay High Court ruled that the notice was illegal and set it aside.
• No Penalty or Prosecution Against Petitioners: The petitioners were freed from any liability under GST law.
• Rule Made Absolute: The court fully allowed the petitions in favor of the employees.
• No Costs Awarded: No financial penalties were imposed on either party.

Significance of the Judgment

1. Protects Employees from Unjust Tax Liabilities
   • Employees cannot be held responsible for a company’s tax evasion unless they personally benefit from it.
   • Tax authorities cannot impose penalties on individuals merely because they handled GST compliance.
2. Prevents Misuse of GST Provisions
   • Sections 122(1A) and 137 must be applied only in appropriate cases where the accused had actual control over tax evasion.
   • Authorities cannot arbitrarily use show cause notices to harass employees.
3. Strengthens Judicial Oversight on Tax Enforcement
   • The judgment reinforces the principle that tax enforcement must be fair and reasonable.
   • Revenue officials cannot misuse laws to threaten individuals.

Conclusion

This landmark ruling clarifies that employees cannot be penalized for corporate tax liabilities unless they directly benefit from evasion. The court's decision protects employees from unfair enforcement actions and prevents the misuse of show cause notices as intimidation tactics.