Executive Summary

In a significant ruling with far-reaching implications for GST enforcement, the Gauhati High Court in Mayank Bansal v. Union of India & Ors. dated 08-06-2026 has held that partners of a partnership firm can be subjected to personal penalty under Section 122(1A) of the Central Goods and Services Tax Act, 2017 ("CGST Act"), where they retained the benefit of specified fraudulent transactions and such transactions were undertaken at their instance. The Court further held that the provision may be invoked even where the underlying transactions occurred before Section 122(1A) came into force on 1 January 2021, provided the show cause notice was issued after the provision became operational. The judgment departs from the restrictive interpretation adopted by the Bombay High Court and aligns with the Delhi High Court's purposive approach, thereby significantly expanding the Department's ability to proceed against individuals responsible for GST evasion.

Background

The petitioners, Mayank Bansal and Nadar Hussain, were partners of M/s Quantum Infratech, a partnership firm engaged in construction activities. Following an investigation by the Directorate General of GST Intelligence (DGGI), the Department alleged suppression of turnover, non-payment of GST on construction services, wrongful availment of input tax credit and other violations during the period from July 2017 to March 2023.

A common show cause notice was issued to both the partnership firm and its partners under Sections 74 and 122(1A) of the CGST Act. The Department alleged that the partners actively participated in the alleged tax evasion, retained the benefits arising from the impugned transactions and were instrumental in carrying them out. Consequently, penalty equivalent to the tax evaded was proposed against each partner.

The petitioners challenged the proceedings before the Gauhati High Court on two principal grounds. First, they contended that Section 122(1A) applies only to the taxable person and cannot be invoked against partners individually. Secondly, they argued that the provision, introduced with effect from 1 January 2021, could not be applied to transactions undertaken before its insertion.

Scope of Section 122(1A)

Section 122(1) of the CGST Act prescribes penalties against a taxable person for specified contraventions, including issuance of invoices without supply, wrongful availment of input tax credit and suppression of taxable turnover. Section 122(1A), inserted by the Finance Act, 2020 with effect from 1 January 2021, extends liability to "any person" who retains the benefit of transactions covered under clauses (i), (ii), (vii) or (ix) of Section 122(1), provided such transactions were undertaken at that person's instance.

The petitioners relied upon the Bombay High Court's decisions in Shantanu Sanjay Hundekari and Amit Manilal Haria, where it was held that the underlying contraventions under Section 122(1) can be committed only by a taxable person. Accordingly, the Bombay High Court concluded that directors or partners who are themselves not taxable persons cannot independently be penalised under Section 122(1A).

The Revenue, however, argued that the Legislature deliberately used the broader expression "any person" in Section 122(1A), indicating an intention to extend liability beyond the taxable person.

Court's Findings

The Gauhati High Court examined the statutory definitions of "person", "taxable person" and "registered person" under the CGST Act and observed that "person" is a wider expression encompassing taxable as well as non-taxable persons. Therefore, the use of the expression "any person" in Section 122(1A) was a conscious legislative choice and could not be restricted to the taxable person alone.

The Court held that liability under Section 122(1A) arises only where two conditions are satisfied: the individual must have retained the benefit arising from the specified transactions, and those transactions must have been undertaken at that individual's instance.

The Court further observed that companies and partnership firms necessarily function through natural persons. Restricting Section 122(1A) only to taxable persons would defeat the legislative intent by allowing those who orchestrate fraudulent transactions to avoid personal liability. Endorsing the reasoning of the Delhi High Court in Gurudas Mallik Thakur dated 23-04-2025, the Court held that the provision was enacted precisely to address such situations.

Applicability to Pre-2021 Transactions

The Court also considered whether Section 122(1A) could be invoked in respect of transactions undertaken before 1 January 2021.

Rejecting the petitioners' contention, the Court held that Section 122(1A) does not create a new offence or introduce any additional category of contravention. Instead, it merely enlarges the class of persons against whom the existing penalty mechanism may operate. Since the contraventions under Section 122(1) already existed prior to 2021, the subsequent insertion of Section 122(1A) only expands the scope of liability.

The Court agreed with the Delhi High Court's view that the relevant date is the issuance of the show cause notice. As the notices in the present case were issued in August 2024, after Section 122(1A) had come into force, the provision could validly be invoked even though some underlying transactions related to the pre-2021 period.

The Court also rejected the constitutional challenge based on Article 20(1), observing that proceedings under Section 122 involve civil statutory penalties rather than criminal punishment. Consequently, the prohibition against retrospective criminal legislation was held to be inapplicable.

Practical Implications

The judgment substantially strengthens the enforcement powers of GST authorities by recognising that partners, directors, promoters and other individuals may face independent personal penalties where they retain the benefit of fraudulent transactions undertaken at their instance. The ruling reinforces that business entities cannot be used as a shield to protect individuals who actively orchestrate tax evasion.

Equally significant is the widening judicial divergence on the interpretation of Section 122(1A). While the Bombay High Court has adopted a restrictive interpretation limiting its application to taxable persons, both the Delhi and Gauhati High Courts have favoured a broader and purposive construction. As similar issues are already pending before the Supreme Court, an authoritative ruling is expected to settle the conflicting judicial views.

Importantly, the Gauhati High Court clarified that its decision addresses only the legal validity of invoking Section 122(1A). Whether the partners actually retained the benefit of the transactions and whether such transactions were undertaken at their instance remain factual issues to be determined by the GST Appellate Tribunal.

Conclusion

The decision in Mayank Bansal marks another important development in the evolving jurisprudence on personal liability under the GST regime. By adopting a purposive interpretation of Section 122(1A), the Gauhati High Court has reinforced the legislative objective of holding accountable those individuals who design, direct or benefit from fraudulent GST arrangements, even where the taxable person is a separate juristic entity.

Until the Supreme Court resolves the conflicting views expressed by different High Courts, taxpayers should proceed with caution. Businesses must recognise that GST compliance is no longer confined to the registered entity alone. Partners, directors and key managerial personnel involved in decision-making may also face personal exposure where statutory conditions under Section 122(1A) are satisfied. Strong internal controls, transparent documentation and effective compliance oversight have therefore become indispensable elements of GST risk management.