Quick answer: On 29 September 2026, in Parag Garg v. Commissioner, Adjudication, CGST Delhi West and Anr. (W.P.(C) 13883/2026 and connected matters), a Division Bench of the Delhi High Court (Anil Kshetarpal and Bharat Parashar, JJ.) decided two questions on Section 122(1A) of the Central Goods and Services Tax Act, 2017. First, the expression “any person” is not confined to a “taxable person”: it reaches anyone, registered or not, who retains the benefit of a transaction covered by clauses (i), (ii), (vii) or (ix) of Section 122(1) and at whose instance it was conducted. Second, the penalty is prospective: it applies only to transactions or acts committed on or after 1 January 2021, “irrespective of the date on which the Show Cause Notice is issued”. The Court did not decide whether any petitioner actually met the two conditions, and left that to the appellate authority under Section 107.
Key Takeaways
- Directors and controllers are within the provision. Section 122(1A) is not limited to the person in whose name the registration stands; it can reach the natural persons who direct and profit from a fraudulent input tax credit scheme.
- Both conditions are mandatory and cumulative. The Revenue must independently establish that the person retained the benefit and that the transaction was conducted at that person’s instance. Holding office as a director is not, on this reasoning, enough.
- The date of the transaction governs, not the date of the notice. Acts before 1 January 2021 cannot attract Section 122(1A), even if the show cause notice was issued years later.
- A conflict now exists inside the Delhi High Court. The Bench declined to follow a coordinate Bench’s contrary observations on temporal reach, so notices and orders covering pre-2021 periods will be contested on this footing.
- The petitions were disposed of with liberty to appeal. Appeals filed within four weeks of the judgment are not to be dismissed as time-barred.
1. Introduction
Section 122(1) of the Central Goods and Services Tax Act, 2017 (“CGST Act”) imposes penalties on a “taxable person” who commits listed contraventions, among them issuing invoices without any supply, taking input tax credit without receiving goods or services, and distributing credit in breach of Section 20. In fake-invoice networks, however, the registered entity is frequently a shell. The people who design the scheme and take the money often hold no registration at all.
Sub-section (1A) was inserted to close that gap. It makes “any person who retains the benefit of a transaction” covered by clauses (i), (ii), (vii) or (ix) of sub-section (1), “and at whose instance such transaction is conducted”, liable to a penalty equal to the tax evaded or the input tax credit availed of or passed on. Since it came into force, courts have disagreed on two points: whether an individual director can be a “person” under it when the company is the taxable person, and whether it can be applied to conduct that pre-dates its commencement.
The Delhi High Court’s judgment of 29 September 2026 addresses both in one batch of petitions. It matters because personal penalties under this provision are pegged to the whole of the alleged credit. In the lead matters, each of three petitioners was fined the same sum as the company. Exposure of that size, imposed on individuals who say they were salaried directors, makes the threshold questions of scope and period decisive.
This article sets out the background and the Court’s holdings, then examines the reasoning, particularly its Article 20(1) analysis, before turning to what advocates and finance teams should do differently.
2. Case Summary and Background
The petitions challenged various show cause notices and consequential orders-in-original in which personal penalties under Section 122(1A) had been imposed on individuals. The Court treated W.P.(C) 5193/2025, W.P.(C) 6862/2025 and W.P.(C) 6913/2025 as the lead cases (paragraph 4).
Those three arose from a common show cause notice dated 27 July 2023 (paragraph 5). By a common order-in-original dated 22 January 2025, passed under Section 74 of the CGST Act against Worlds Window Impex India Private Limited, the adjudicating authority confirmed a demand on the allegation that the company had engaged in circular trading and irregularly availed input tax credit of ₹24,99,88,069 through invoices issued without actual supply of goods.
Besides penalising the company, the adjudicating authority imposed separate personal penalties of ₹24,99,88,069 on each of the three petitioners under Section 122(1A), together with a penalty of ₹25,000 each under Section 125, on the ground that they had been directors of the company at different points in time (paragraph 6).
The petitioners argued, in substance, that:
- neither the notice nor the order attributed any specific act or role to them;
- two of them were appointed directors only in August 2020, after the impugned transactions, and the third had resigned on 7 August 2020, and all were employee-directors, not promoters or shareholders;
- Section 122(1A) came into force on 1 January 2021 and could not apply to earlier transactions, on pain of offending Article 20(1) of the Constitution, and the alleged availment covered 1 July 2017 to 31 March 2019, or at most to 30 August 2020;
- the twin conditions of retained benefit and instance were neither alleged nor found; and
- penalising three individuals separately, each for the entire credit, was arbitrary (paragraph 8).
The Revenue answered that a statutory appeal under Section 107 was available and no constitutional challenge had been raised; that the provision was not retrospective merely because earlier conduct was relevant, since the underlying contraventions were already prohibited; that Article 20(1) does not apply to a civil or fiscal penalty; and that who actually benefited was a disputed question of fact (paragraph 9).
The Court acknowledged the alternative remedy but entertained the petitions because they raised “a substantial question of law” (paragraph 2). It framed two questions (paragraph 3): whether Section 122(1A) penalty can be recovered from a non-taxable person, and whether it applies only to offences committed after 1 January 2021.
On the first, the Court held that “any person” is not confined to a taxable person as defined in Section 2(107). On the second, it held that only acts on or after 1 January 2021 attract the penalty. It directed that the petitioners file statutory appeals within four weeks, and that such appeals not be dismissed on limitation (paragraphs 55 to 58). It expressly declined to decide whether any petitioner had retained a benefit or caused a transaction to be conducted, or whether the transactions fell before or after 1 January 2021 (paragraph 54).
3. Legal Analysis
3.1 Issue one: who is “any person”?
The Court began with the structure of the provision. Section 122(1A) applies only where two conditions are met: the person “has retained the benefit of a transaction” within clauses (i), (ii), (vii) or (ix), and the transaction “has been conducted at his instance” (paragraph 22). The Court described these as “conjunctive and not disjunctive”, each to be “independently established” (paragraph 23). The inquiry also presupposes that a contravention within those clauses has first been established against the taxable person; only then does the question of who benefited and who instigated arise.
The textual argument followed. Sub-section (1) speaks of a “taxable person” (defined in Section 2(107)); sub-section (2) of “any registered person” (Section 2(94)); sub-sections (1A) and (3) of “any person”, which Section 2(84) defines widely to include individuals, companies, firms, limited liability partnerships and every artificial juridical person (paragraphs 24 to 26). Reading “any person” as “taxable person” would insert words the Legislature chose not to use (paragraph 27). The Court also observed that sub-section (3), which deals with aiding and abetting, uses the identical phrase without any suggestion that it is confined to a taxable person (paragraph 33).
The purposive reasoning is the more persuasive. Fraudulent credit schemes are often built on entities registered in the names of “a peon, driver, domestic help, or even a person whose identity documents have been misused”, while the real orchestrator may never have been registered (paragraph 28). On a narrow reading, the person whose identity was misused could be penalised while the actual beneficiary escaped (paragraph 29). The Court added that a company or limited liability partnership “can never, on its own, retain a benefit or direct a transaction”, so confining the provision to the taxable person would make it otiose in exactly the corporate cases it was aimed at (paragraph 32). It also noted the legislative history: the provision followed the recommendation of the 38th GST Council meeting of 18 December 2019 and was inserted by the Finance Act, 2020 with effect from 1 January 2021 (paragraph 30).
On precedent, the Bench agreed with the Bombay High Court in Bharat Parihar, followed its own earlier decision in Gurudas Mallik Thakur and the Gauhati High Court’s decision of 8 June 2026 in Mayank Bansal, and declined to follow the Bombay High Court’s Shantanu Sanjay Hundekari and Amit Manilal Haria on this point. It also observed that the Supreme Court’s dismissal of the special leave petition against Shantanu Sanjay Hundekari had been on the facts and had left the interpretive question open (paragraph 36).
Two observations are worth making. First, the holding on “any person” is narrower than the Revenue’s framing suggests. The Court said nothing to the effect that holding office makes a director liable; it stressed the twin conditions and left their application to the appellate authority. The result is consistent with the concern in Shantanu Sanjay Hundekari that employees cannot be penalised without material showing personal retention of benefit and personal involvement (paragraph 13). The disagreement is about the category, not the evidentiary bar. Second, that evidentiary bar is where most of the litigation will now be fought. “Retains the benefit” and “at whose instance” are questions of fact that turn on money trails, statements and control, and the adjudicating authority must record findings on each.
3.2 Issue two: prospective operation
The Court’s reasoning on temporal reach is more novel and, in my assessment, more open to challenge.
It started from the statutory parallel between Sections 122 and 132. Clauses (i), (ii), (vii) and (ix) of Section 122(1) substantially correspond to the offences in clauses (a), (b), (c) and (e) of Section 132(1), and both provisions were amended with effect from 1 January 2021. Section 122 gained sub-section (1A), while the opening words of Section 132(1) changed from “Whoever commits” to “Whoever commits, or causes to commit and retains the benefit arising out of” (paragraphs 39 and 40). Before the amendment, Section 132 was wide as to the class of persons but narrow as to role, while Section 122 was narrow as to the class of persons. The twin amendments removed that dichotomy (paragraphs 41 and 42).
Section 132 carries imprisonment graded by amount: up to five years where the amount exceeds ₹5 crore, three years above ₹2 crore and up to ₹5 crore, and one year above ₹1 crore and up to ₹2 crore (paragraph 43). The Court held that Article 20(1) of the Constitution, which bars a penalty greater than that prescribed by the law in force when the act was committed, “unquestionably” confines that provision to conduct on or after 1 January 2021 (paragraph 44). It then reasoned: “It would be incongruous to hold that Section 132 is so confined, while the corresponding monetary penalty under Section 122(1A) of the Act of 2017 … is treated as available for conduct predating that amendment.”
The Court accepted that the Section 122(1A) penalty is “civil in form” but held it “penal in consequence”, so its applicability “must, therefore, bear a nexus with the date of the underlying act or transaction” (paragraph 45). It added: “The subsequent issuance of a SCN cannot alter the date on which the alleged contravention was committed.” Testing the provision by the notice date would let identical transactions attract different consequences depending on when the Department chose to act (paragraph 46). The Court accordingly held that applicability is determined by the date of the act, not of the notice (paragraph 49).
This required departing from Bhupender Kumar (Delhi High Court) and Mayank Bansal (Gauhati High Court), which tested the provision against the notice date and treated a continuing scheme spanning the cut-off as attracting it in full. The Bench observed that in Bhupender Kumar its attention “does not appear to have been drawn to Article 20”, and characterised the relevant observations as obiter made while relegating parties to the alternative remedy (paragraph 50). It agreed instead with Amit Manilal Haria on temporal applicability alone (paragraph 51).
Three points of critique follow.
First, the Article 20(1) foundation is less secure than the judgment’s confident tone implies. The Revenue argued that Article 20(1) protects against criminal punishment and not civil penalties, and the Gauhati High Court had relied on that distinction. The Bench did not squarely hold that Section 122(1A) is a criminal penalty. It conceded the provision is civil in form, then reached the same result through the Section 132 parallel, the concept of a penal consequence, and the absence of clear words of retrospectivity (paragraphs 44 to 47). That is a defensible rule of construction, but the Court did not resolve whether Article 20(1) applies of its own force to a civil penalty of this kind. The strongest version of the holding is therefore one of statutory interpretation, and it should be pleaded as such.
Second, the Court did not address the question that its own reasoning invites. If a mastermind cannot be penalised under Section 122(1A) for pre-2021 acts, the Revenue may look to other provisions, such as Section 122(3), which penalises aiding and abetting up to ₹25,000. That provision was not discussed on this point, and the judgment says nothing on whether a pre-2021 director could be reached that way. This is an unresolved question, not a holding.
Third, the Court’s treatment of continuing schemes is brief. It rejected the notice-date test as a general proposition, but the operative rule, that “only transactions or acts occurring on or after 01.01.2021” attract the penalty (paragraph 49), leaves open how a scheme that straddles the date should be apportioned. The direction in paragraph 57 that the appellate authority decide whether transactions fall within the post-2021 period suggests apportionment by transaction, but the judgment supplies no method. Credit taken before the date but utilised or passed on afterwards is an obvious example of the difficulty.
The Court also dealt with maintainability. Departing from the ordinary rule that a Section 107 appeal must be exhausted, it held that “the existence of an alternative statutory remedy under Section 107 would not … preclude this Court from exercising its discretionary jurisdiction, particularly where the questions raised are purely legal and of general application” (paragraph 53). The reasoning is confined to pure questions of law of general application; mixed questions of fact remain for the appellate authority.
4. Practical Significance
For individuals named in notices. The first check is the period. For every transaction in a show cause notice or order that pre-dates 1 January 2021, the Delhi High Court’s holding is that Section 122(1A) cannot apply. Replies and appeals should break the alleged credit down by date so that the post-2021 component, if any, is isolated. A penalty pegged to the entire credit, as in the lead matters, is exposed if much of that credit relates to earlier periods.
The second check is the pleading against each individual. Since both conditions must be independently established, a notice that merely lists the person as a director, without alleging retained benefit and instigation, is vulnerable on the Court’s own reading. The order should be tested for separate findings on each condition and for the material behind them.
For companies and finance teams. Directors and senior managers now have direct personal exposure, not merely a reputational concern, where a supplier chain is later alleged to be fictitious. Diligence on suppliers, records of physical receipt and payment through banking channels, and board-level oversight of credit reconciliation support the argument that a person neither instigated nor benefited. Directors should also keep clear records of when they joined and left, as the petitioners here relied on their appointment and resignation dates.
Choice of remedy. The Court entertained these petitions only because the questions were purely legal and had produced conflicting decisions, and it sent the fact-dependent questions to the appellate authority. Litigants should not read the judgment as a licence to bypass Section 107 in every Section 122(1A) matter. Where the challenge turns on whether the person retained a benefit, the statutory appeal is the forum. Where the point is the pre-2021 period, the legal ground is now supported by this authority, but the appeal remains the prudent route unless a jurisdictional defect is clear.
Limitation. The direction that appeals filed within four weeks of the judgment will not be dismissed as time-barred (paragraph 58) was given to these petitioners. Other assessees should not assume the same indulgence and should compute limitation under Section 107 from the date of the order in the ordinary way.
Conflicting authority. The Delhi judgment disagrees with the Bombay High Court on scope, and with the Gauhati High Court and an earlier Delhi Division Bench on timing. Revenue authorities in other jurisdictions are not bound by it, and the Bombay High Court’s position that only a taxable person can be penalised under the provision may be pressed elsewhere. Advocates should cite the judgment for both propositions and anticipate the counter-authority. The divergence makes this a likely subject for further appellate consideration, though nothing in the judgment says so.
5. Conclusion
The judgment gives the Revenue what it needs on scope and takes away what it wanted on timing. Section 122(1A) reaches those who stand behind a corporate or shell registration and profit from fictitious invoicing, but only for acts on or after 1 January 2021. On the first point, the textual and purposive reasoning is strong, and it aligns the provision with the mischief that led to its enactment. On the second, the outcome is sensible and the parallel with Section 132 is illuminating, though the Article 20(1) discussion is less convincing than the statutory-construction argument that accompanies it.
The decision is careful in what it leaves undecided. It does not hold any petitioner liable and does not say that directors as a class are within the penalty. It confirms that retained benefit and instigation are separate, mandatory findings, and it sends their determination to the appellate authority. Much of the future litigation will therefore concern evidence rather than construction.
Two questions remain open: how to apportion a scheme that straddles 1 January 2021, and what other penal provisions may apply to earlier conduct. Until a higher court addresses the diverging High Court positions, assessees and advisers should treat the period and the twin conditions as the two points on which every Section 122(1A) notice must be tested.
Authorities and Legislation
Applied or considered by the Court:
- Bharat Parihar v. State of Maharashtra, [2025] 142 GSTR 164 (Bom) — agreed with on the meaning of “any person” (paragraph 31).
- Gurudas Mallik Thakur v. Commissioner of Goods and Service Tax, 2025:DHC:2957-DB (Delhi High Court) — followed on “taxable person” and “any person” (paragraph 34).
- Mayank Bansal v. The Union of India and 5 Ors., 2026:GAU-AS:8028 (Gauhati High Court), decided 8 June 2026 — agreed with on scope; not followed on timing (paragraphs 35 and 50).
- Amit Manilal Haria and Ors. v. Joint Commissioner, CGST and Central Excise and Anr., 2026 SCC OnLine Bom 1510 — adopted on temporal applicability; not followed on scope (paragraph 51).
- Shantanu Sanjay Hundekari v. Union of India, (2024) 132 GSTR 346 (Bom) — not followed on scope (paragraph 32); Union of India v. Shantanu Sanjay Hundekari & Anr., SLP (C) No. 55427/2024 — dismissal held not to affirm the Bombay view (paragraph 36).
- Bhupender Kumar v. Additional Commissioner (Adjudication), CGST and Ors., 2025 SCC Online Delhi 4848 — not followed on temporal applicability (paragraph 50).
Cited by counsel (not relied on by the Court in reaching its holdings):
- CIT, New Delhi v. Vatika Township Pvt. Ltd., (2015) 1 SCC 1
- CCE, Ahmedabad v. Orient Fabrics (P) Ltd., (2004) 1 SCC 597
- Ritesh Agarwal and Anr. v. SEBI and Ors., (2008) 8 SCC 205
- Mafatlal Industries Ltd. and Ors. v. Union of India and Ors., (1997) 5 SCC 536
- Embassy Property Developments Pvt. Ltd. v. State of Karnataka and Ors., (2020) 13 SCC 308
- Union of India v. Madan Gopal Kabra, AIR 1954 SC 158
- Shanti Conductors (P) Ltd. and Anr. v. Assam SEB and Ors., (2019) 19 SCC 529
- Zile Singh v. State of Haryana and Ors., (2004) 8 SCC 1
- SEBI v. Ajay Agarwal, (2010) 3 SCC 765
- Orissa Agro Industries Corporation Ltd. and Ors. v. Bharati Industries and Ors., (2005) 12 SCC 725
- K.D. Sharma v. SAIL and Ors., (2008) 12 SCC 481
- Ramjas Foundation and Anr. v. Union of India and Ors., (2010) 14 SCC 38
- Prestige Lights Ltd. v. SBI, (2007) 8 SCC 449
- Eera v. State (NCT of Delhi) and Anr., (2017) 15 SCC 133
- Allied Motors (P) Ltd. v. CIT, Delhi, (1997) 3 SCC 472
- R v. Andrewes, [2022] UKSC 24
Noticed only as described in another High Court’s decision:
- Jawala Ram and Ors. v. State of Pepsu (now Punjab) and Ors., 1961 SCC OnLine SC 47 — relied on by the Gauhati High Court in Mayank Bansal for the view that Article 20(1) does not extend to every civil penalty (paragraph 19).
Legislation considered:
- Sections 2(84), 2(94), 2(107), 74, 107, 122 (including sub-sections (1), (1A), (2) and (3)), 125 and 132, Central Goods and Services Tax Act, 2017 — https://www.indiacode.nic.in/
- Finance Act, 2020 (insertion of Section 122(1A) with effect from 1 January 2021)
- Article 20(1) and Article 226, Constitution of India
This article is not legal advice and does not create an attorney–client relationship. Readers should verify the certified copy of the judgment and any subsequent clarificatory orders before relying on it, and consult a qualified advocate on the facts of their matter.