Introduction
In a landmark judgement, Shantanu Sanjay Hundekari v. Union of India[i], the Bombay High Court (‘BHC’) examined the case that highlighted the complexities and potential unfairness of tax laws. This matter unveiled a remarkable conundrum faced by a salaried individual, implicated in liabilities totalling Rs. 3731 Crores under s. 122(1A) of the Central Goods & Services Act, 2017 (‘CGST Act’) and prosecution under ss. 137(1) and 137(2) of the CGST Act. The case revolved around a show cause notice (‘SCN’) issued to Mr. Shantanu Sanjay Hundekari (‘Petitioner’). The SCN alleged that the Petitioner had abetted Maersk in committing various offences under the CGST Act, resulting in substantial tax evasion.
Brief Facts
The Petitioner was the taxation manager of M/s Maersk Line India Pvt. Ltd. (‘MLIFL’). MLIFL was appointed as the steamer agent of Maersk A/S (‘Maersk’), a company engaged in the shipping business. The Petitioner assisted Maersk in its compliance with taxation matters and held power of attorney to represent Maersk before the Indian tax authorities.
The Respondent, the Directorate General of GST Intelligence (‘DGGI’) issued an SCN to the Petitioner among other notices. It was alleged that the sum of Rs. 1,561 crores was wrongly utilized as input tax credit (‘ITC’) by MLIFL. The Petitioner was called upon to show cause why a penalty equivalent to the tax allegedly evaded by MLIFL should not be imposed on him under ss. 137 and 122(1A) of the CGST Act, thereby potentially imposing a penalty of Rs. 3,731 crores on the Petitioner.
The Petitioner challenged the validity of the impugned SCN on the grounds of jurisdictional overreach and misapplication of the relevant provisions. He argued that s.122(1A) of the CGST Act did not apply to him since he did not derive any benefit from transactions conducted by MLIFL, thus invoking this section was unjustified.
Held
The BHC ruled in favour of the Petitioner, declaring that the SCN issued to him was illegal and unenforceable due to jurisdictional overreach and misapplication of the provisions of the CGST Act.
It was held that this section applies only to a 'taxable person,’ or 'registered person' as defined under s. 2(107) in conjunction with s.2(94) of the CGST Act. Moreover, s. 122(1A) of the CGST Act pertains to a taxable person who retains the benefits of transactions covered under its clauses. Given that the Petitioner was neither a taxable person under the CGST Act nor retained any benefits from the transactions, this court concluded that the penalty stipulated under s. 122(1A) of the CGST Act could not be imposed on him.
The BHC determined that this section, which deals with offences and penalties, could not be invoked against the Petitioner concerning the business conduct of MLIFL, nor in conjunction with Section 122(1A). The SCN, having been issued under s 74 of the CGST Act (not a penal provision), was incorrectly associated with s. 137 of the CGST Act, leading to its inapplicability.
It held that the impugned SCN lacked the basic requirements necessary for invoking the provisions of the CGST Act, critically affecting the jurisdiction to issue such a notice.
The BHC held that the Petitioner was merely an employee without decision-making authority on Maersk’s operation in India. He had only assisted and cooperated with the investigation authorities regarding the distribution of the ITC claimed by Maersk.
It concluded that it was highly unconscionable and disproportionate for the Revenue officer to demand Rs. 3,731 crores from the Petitioner, an amount purportedly reflecting Maersk's liability, as evidenced by the contents of the SCN.
Analysis
This judgment clearly demonstrates that the provisions of the CGST Act were inapplicable to the Petitioner. The BHC ruled in favour of the Petitioner, highlighting jurisdictional errors and the disproportionate nature of the penalties imposed by the Revenue. The case underscores the critical need for precision in the application of tax laws and reinforces the principle of fairness in taxation, safeguarding individuals against arbitrary actions by tax authorities. This decision serves as a pivotal legal precedent, illuminating the complexities associated with tax penalties and emphasizing the essential need for strict adherence to jurisdictional principles.
End Note
[i] 2024 SCC OnLine Bom 929
Authored by Onam Singhal, Chartered Accountant at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.