The Gauhati High Court has ruled that partners or individuals who benefit from GST evasion can be personally penalized under Section 122(1A) of the CGST Act, even if the transactions occurred before the provision was introduced on January 1, 2021. This decision came in the case involving Mayank Bansal and Nadar Hussain, partners of M/s Quantum Infratech, who were investigated for alleged GST evasion related to construction services. The authorities issued a show cause notice in August 2024, proposing penalties under Section 122(1A), claiming the partners retained benefits from the evasion.
The petitioners challenged the penalties, arguing that Section 122(1A) applies only to the taxable entity and cannot be applied retrospectively. However, the Court clarified that the provision's language, "any person," extends liability to individuals who orchestrate and benefit from fraudulent transactions, not just the taxable entity. It stated that the provision identifies additional liable persons for existing violations under Section 122(1), and does not create a new offence, thus permitting its application to prior transactions.
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The Court also noted that proceedings under Section 122 involve civil penalties, not criminal punishment, making Article 20(1) of the Constitution inapplicable. Consequently, as long as Section 122(1A) was in force when the show cause notice was issued, the proceedings were deemed valid.
Order Date - 08 June 2026
Parties: Mayank Bansal and Nadar Hussain (Partners of M/s Quantum Infratech) Vs Union of India, State of Assam, DGGI Guwahati, CGST Authorities and Appellate Authority.
Facts -
- Petitioner Mayank Bansal and Petitioner Nadar Hussain, partners of M/s Quantum Infratech, were investigated by DGGI for alleged GST evasion involving suppression of turnover, cash collections without invoices, ineligible ITC claims and tax liabilities relating to construction services.
- The department issued a common show cause notice on 03.08.2024 proposing penalty under Section 122(1A) of the CGST Act on the ground that the partners had personally retained the benefits arising from the alleged tax evasion and the transactions were conducted at their instance.
- The partners did not file any specific reply denying these allegations, and the adjudicating authority imposed a penalty equivalent to the tax evaded through Order-in-Original dated 04.02.2025, which was later affirmed in appeal on 26.08.2025.
- Aggrieved by the penalty orders, the partners approached the Gauhati High Court contending that Section 122(1A) applies only to the taxable person (the partnership firm) and cannot be invoked retrospectively for periods before 01.01.2021.
Issue -
- Whether partners of a partnership firm can be personally penalised under Section 122(1A) of the CGST Act and whether the provision can apply to transactions that occurred prior to its introduction on 01.01.2021.
Order -
- Section 122(1A) uses the expression "any person" and not merely "taxable person". The Court observed that companies and partnership firms act through natural persons, and therefore individuals who orchestrate and benefit from fraudulent transactions cannot escape liability merely because the taxable entity is a separate juristic person.
- The provision creates liability for persons who retain benefits and at whose instance the transactions are undertaken. Once these twin conditions are satisfied, partners, directors or other individuals can be independently proceeded against under Section 122(1A), irrespective of whether they are the taxable person.
- Section 122(1A) does not create a new offence but only identifies additional persons liable for existing violations under Section 122(1). Therefore, applying the provision to earlier transactions does not amount to retrospective creation of a new penal offence.
- Article 20(1) of the Constitution was held inapplicable because proceedings under Section 122 involve civil penalties and not criminal punishment for an offence. The Court held that as long as Section 122(1A) was in force on the date of issuance of the show cause notice, proceedings under the provision could be sustained.
