GST Penalty on Partners of a Firm Under Section 122(1A) of CGST Act, 2017 — Gauhati High Court Resolves Conflicting Views

Case Reference

Mayank Bansal Vs Union of India (Gauhati High Court)

Overview

A significant jurisdictional controversy surrounding Section 122(1A) of the Central Goods and Services Tax Act, 2017 has been authoritatively addressed by the Gauhati High Court. The judgment resolves two critical questions that had generated conflicting decisions across High Courts — first, whether partners of a partnership firm can be subjected to penalty under Section 122(1A) of the CGST Act, 2017, and second, whether such penalty provision can operate with respect to transactions that predate its insertion, i.e., prior to 01.01.2021.

The Court's ruling carries wide-ranging implications for any assessee who holds a managerial, directorial, or partnership position in a business entity registered under the GST framework and is allegedly involved in transactions tainted by fraud or evasion.

Background and Genesis of the Dispute

The two petitioners before the Gauhati High Court were partners of M/S Quantum Infratech, a partnership firm engaged in residential construction activity. Following an investigation spanning the period from July 2017 to March 2023, a Show Cause Notice dated 03.08.2024 was issued under Section 74(1) read with Section 122(1A) and Section 122(3)(a) of the CGST Act, 2017 to the firm, its partners, and the firm's accountant.

The investigation unearthed allegations of:

  • Evasion of GST on construction services supplied to landowners
  • Non-discharge of reverse charge liability on transfer of development rights
  • Wrongful availment of ineligible input tax credit (ITC) during July 2017 to March 2023
  • Suppression of actual taxable turnover
  • Collection of undisclosed cash from customers without issuance of invoices or receipt vouchers
  • Non-compliance with summons issued under Section 70 of the CGST Act, 2017

Specific Allegations Against the Petitioners

Paragraphs 9.6 and 9.7 of the Show Cause Notice contained individualized allegations against each partner. The relevant portions as reproduced by the Court read as follows:

"9.6 Offences committed by Shri Mayank Bansal (Noticee No.2), partner of M/s Quantum Infratech GSTIN 18AAAFQ3262E1ZH (Noticee No.1) and Penalty: Further, Shri Mayank Bansal (Noticee No 2), being the partner of the Noticee No.1 has concerned himself with the supply of services, which he knows or has reasons to believe are in contravention of any provisions of the Act or the rule made thereunder... Thus Shri Mayank Bansal (Noticee No.2) appears to have concerned himself in retaining the benefits of transaction performed by supply of taxable service without issuance of any Tax invoice and at whose instances such transaction is conducted and as such rendering himself liable for penalty under the provision of Section 122(1A) of CGST Act, 2017..."

"9.7 Offences committed by Shri Nadar Hussain (Noticee No.3), partner of M/s Quantum Infratech GSTIN 18AAAFQ3262E1ZH (Noticee No.1)... Thus Shri Nadar Hussain (Noticee No.3) appears to have concerned himself in retaining the benefits of transaction performed by supply of taxable service without issuance of any Tax invoice and at whose instances such transaction is conducted and as such rendering himself liable for penalty under the provision of Section 122(1A) of CGST Act, 2017..."

Despite being given an opportunity to respond, the petitioners did not submit any reply to the allegations in paragraphs 9.6 and 9.7.

Adjudication and Appeals

Following personal hearings, an Order-in-Original dated 04.02.2025 was passed, confirming penalties under Section 122(1A) upon both partners equivalent to the tax evaded by the firm. The Adjudicating Authority specifically held that the transactions were conducted at the instance of the partners and that they had retained the benefits thereof.

Both partners filed individual appeals before the Appellate Authority. M/S Quantum Infratech also filed six separate appeals. All eight appeals were consolidated and dismissed by the Appellate Authority vide Order-in-Appeal dated 26.08.2025. The partners thereafter approached the Gauhati High Court by way of writ petitions, raising purely jurisdictional challenges.

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

The provision, as inserted by the Finance Act, 2020 with effect from 01.01.2021, reads:

"Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on."

Key Underlying Clauses of Section 122(1)

The relevant clauses referenced in Section 122(1A) include:

  • **Clause (i)😗* Supply of goods or services without issuance of an invoice or issuance of an incorrect or false invoice
  • **Clause (ii)😗* Issuance of an invoice without an actual supply of goods or services
  • **Clause (vii)😗* Taking or utilizing ITC without actual receipt of goods or services, in contravention of the Act
  • **Clause (ix)😗* Taking or distributing ITC in contravention of Section 20 or rules thereunder

Two Jurisdictional Issues Before the Court

The Gauhati High Court confined its examination to the following two questions: