A Division Bench of the Delhi High Court, comprising Justices Anil Kshetarpal and Bharat Parashar, has ruled on a batch of writ petitions, including one filed by Worlds Window Impex India Pvt. Ltd. and connected entities, challenging show cause notices and orders-in-original that imposed personal penalties under Section 122(1A) of the Central Goods and Services Tax Act, 2017 on persons said to have retained the benefit of fraudulently availed input tax credit.
The petitioners argued that Section 122(1A), which was inserted with effect from 1 January 2021, could not be used to penalise a person who is neither registered under GST nor otherwise liable to be registered, since the provision's language was said to target only persons transacting within the registered GST ecosystem. The Court rejected this reading, holding that the phrase 'any person' in Section 122(1A) is not confined to a registered or otherwise taxable person, and can reach an unregistered intermediary or beneficiary of a fraudulent input tax credit chain provided the statutory conditions, namely that the person caused the credit to be availed and retained its benefit, are otherwise satisfied.
At the same time, the Bench held that the provision operates only prospectively. Because Section 122(1A) came into force on 1 January 2021, it can apply only to acts or transactions occurring on or after that date, regardless of when the department later issued the show cause notice. A notice issued after 2021 cannot be used as a vehicle to penalise conduct that took place before the provision existed.
The Court accordingly directed that the petitioners' liability, if any, be re-examined strictly by reference to the date of the underlying transaction rather than the date of the notice, remitting several of the matters for fresh consideration on that basis.