Partners of a company (taxable person) can be imposed penalty under Section 122(1A) and for periods before the said provision

The Gauhati High Court has answered in affirmative the question as to whether partners of a company (taxable person) can be imposed penalty under Section 122(1A) of the CGST Act, 2017. The Court for this purpose noted the following:

• While Section 122(1) refers to ‘taxable person’, the Section 122(1A) refers to ‘any person’.
• Identification of person for Section 122(1A) is upon the adjudication carried out under Section 122(1) in respect to a taxable person who had committed violations under Clauses (i), (ii) (vii) and (ix) of Section 122(1).
• Sub-section (1A) was inserted after sub-section (1) specifically to deal with the person who retained the benefits of a transaction and at whose instance such transaction was conducted by the taxable person.

The High Court for this purpose relied upon the definitions of ‘person’, ‘taxable person’ and ‘registered person’. The Gauhati High Court here in Mayank Bansal, Partner - Quantum Infratech Assam v. Union of India differed with the earlier decisions of the Bombay High Court in Amit Manilal Haria v. Joint Commissioner and Shantanu Sanjay Hundekari v. Union of India and agreed with the Delhi High Court decision in Gurudas Mallik Thakur v. Commissioner, while it observed that the company, LLP, partnership firm or any juridical person cannot on its own without the involvement of a natural person commit the violations as mentioned in clauses (i), (ii), (vii) and (ix) of Section 122(1). It was held that acceptance of Bombay HC’s view would render the sub-section 122(1A) otiose and nugatory. 

Also, the Court here noted that the Partners (petitioners here) had not denied the findings of the authority that they had retained the benefit of the transactions covered under Clause (i) and Clause (vii) of sub-section (1) of Section 122 and at their instance, such transactions were conducted.

Retrospective applicability of Section 122(1A)

Further, agreeing with the Delhi High Court decision in Gurudas Mallik Thakur, the Court here was held that Section 122(1A) would be applicable against the petitioners for any transactions covered under Clauses (i), (ii), (vii) and (ix) of sub-section 122(1) even for the period prior to coming into effect of Section 122(1A). It was observed the following:

• Section 122(1A) does not create any independent violation, nor does it enlarge the violations contemplated under Section 122(1).
• Penalty under Section 122(1A) is relatable to violations under Clauses (i), (ii), (vii) and (ix) of sub-section 122(1) which were in existence since inception of the GST Acts. Thus, no new violations were created by Section 122(1A).
• Bombay HC in Amit Manilal Haria did not note the difference between an offence and penalty in respect to a civil adjudication. No violation thus of Article 20(1) of the Constitution. 
• SCN was issued when Section 122(1A) was in force. No question of it having retrospective effect.