Gauhati High Court on Personal Penalty of Partners Under Section 122(1A) of the CGST Act

Overview

The Gauhati High Court in Mayank Bansal v. Union of India & Ors. has delivered a significant ruling on the scope and timing of Section 122(1A) of the CGST Act. The Court has clarified two crucial aspects:

  1. Who can be penalised – partners and other natural persons can face personal penalty under Section 122(1A) even if they are not “taxable persons” under Section 2(107), so long as:

    • they retained the benefit of fraudulent or irregular transactions, and
    • such transactions were carried out at their instance.

  2. From when it applies – although Section 122(1A) came into force from 01.01.2021, it can be invoked for transactions relating to earlier periods because it does not introduce a new offence, but merely pinpoints who is liable for violations that were already punishable under Section 122(1) since the inception of the GST regime.

The decision upholds the adjudicating authorities’ jurisdiction to impose personal penalties on partners, while leaving all factual disputes (about actual involvement and benefit) to be examined by the GST Appellate Tribunal.

Factual Matrix

Parties and Business Background

  • The petitioners, Mr. Mayank Bansal and Mr. Nadar Hussain, are partners in M/s Quantum Infratech, a partnership firm engaged in developing residential projects.
  • A detailed investigation was initiated by the Directorate General of GST Intelligence into the firm’s activities.

Show Cause Notice and Allegations

A consolidated Show Cause Notice (SCN) dated August 03, 2024 was issued under:

  • Section 74(1) read with
  • Section 122(1A) and Section 122(3)(a) of the CGST Act

for the period July 2017 to March 2023. The SCN alleged, inter alia:

  • Non-payment of GST on construction services supplied to landowners under joint development arrangements.
  • Failure to discharge GST under reverse charge mechanism on transfer of development rights.
  • Wrongful availment of ineligible Input Tax Credit (ITC).

Specifically, in paragraphs 9.6 and 9.7 of the SCN, it was alleged that the petitioners, in their capacity as partners:

  • were directly concerned with the supply of services in contravention of the CGST Act,
  • suppressed turnover and collected unaccounted cash without issuing invoices,
  • obstructed the investigation by not providing documents requisitioned under Section 70, and
  • retained the benefit of transactions that were allegedly carried out at their instance,

thereby attracting personal penalty under Section 122(1A).

The petitioners failed to file any substantive reply refuting these detailed allegations.

Adjudication and Appeal

  1. Order-in-Original (OIO) – dated February 04, 2025

    • The Adjudicating Authority imposed a personal penalty on each partner under Section 122(1A), equivalent to the tax allegedly evaded by the firm.

  2. Order-in-Appeal (OIA) – dated August 26, 2025

    • The Appellate Authority dismissed the appeals and sustained the penalties.

The partners then approached the Gauhati High Court by way of writ petitions challenging the jurisdiction to levy penalty on them, not the factual findings, raising two principal legal contentions.

The Court considered the following core questions:

  1. Scope of “any person” under Section 122(1A)
    Whether partners of a partnership firm, who do not fall within the definition of “taxable person” in Section 2(107) of the CGST Act, can nevertheless be subjected to personal penalty under Section 122(1A).

  2. Temporal applicability of Section 122(1A)
    Whether Section 122(1A), introduced with effect from 01.01.2021, can be relied upon to impose penalties in relation to pre-2021 transactions, or whether such use would amount to impermissible retrospective application of a penal provision.

Statutory Framework and Interpretation

Distinction between “taxable person”, “registered person” and “any person”

The Court undertook a composite reading of:

  • Section 2(84)
  • Section 2(94)
  • Section 2(107)
  • Section 122(1)
  • Section 122(1A)
  • Section 122(2)
  • Section 122(3)

On this basis, it observed:

  • The Legislature has deliberately used different expressions – “taxable person”, “registered person”, and “any person”.
  • These terms are not interchangeable and must be given their plain and distinct meanings.
  • Section 122(1) specifically targets the “taxable person” committing one of the listed contraventions.
  • In contrast, Section 122(1A) uses the broader expression “any person” and contains two qualifying conditions:
    1. The person must have retained the benefit of a transaction falling under clauses (i), (ii), (vii) or (ix) of Section 122(1).
    2. Such transaction must have been conducted at that person’s instance.

This, according to the Court, reflects a conscious legislative choice to widen the net beyond just the registered or taxable entity.

Role of Natural Persons behind Juridical Entities

The Court emphasised that entities like companies, LLPs and partnership firms:

  • are juridical persons, incapable of acting except through their officers, partners, or other natural persons.
  • cannot by themselves carry out the fraudulent or irregular activities described in clauses (i), (ii), (vii) and (ix) of Section 122(1) without human agency.