Can Employees Be Held Liable for Employer’s Tax Evasion? Supreme Court Clarifies in a Landmark Judgment

 Can Employees Be Held Liable for Employer’s Tax Evasion? Supreme Court Clarifies in a Landmark Judgment

Case Summary

The Supreme Court of India upheld the Bombay High Court’s ruling, confirming that employees and power of attorney holders cannot be held liable under Section 122(1A) of the CGST Act unless they personally benefit from tax evasion.

The case revolved around employees of Maersk Line India Pvt. Ltd. (MLIPL), including Shantanu Sanjay Hundekari, who were issued a show cause notice (SCN) under Section 74 of the CGST Act. The notice alleged wrongful Input Tax Credit (ITC) claims amounting to ₹3,731 crores. The authorities invoked Sections 122(1A) and 137 of the CGST Act against these employees, contending that they were responsible for GST compliance.

The petitioners argued that they were merely power of attorney holders with no direct involvement in the company's day-to-day operations. The Bombay High Court ruled in their favor, stating that Section 122(1A) applies only to taxable persons who retain benefits from tax evasion. Since the employees did not personally benefit from the alleged evasion, the invocation of this section was deemed unlawful. Furthermore, the court held that Section 137, which pertains to offenses by companies, could not be applied alongside Section 122(1A) since both provisions serve different legal purposes.

The Revenue Department challenged the ruling before the Supreme Court through a Special Leave Petition (SLP). However, the Supreme Court upheld the High Court's decision and dismissed the appeal. The Supreme Court emphasized that penal provisions under GST must be strictly interpreted and cannot be extended to employees or power of attorney holders unless they are taxable persons who directly benefit from tax evasion.

Key Takeaways from the Supreme Court Judgment

• Employees and power of attorney holders are not liable under GST laws unless they are "taxable persons."
• Section 122(1A) applies only to individuals who personally benefit from tax evasion.
• Strict interpretation of penal provisions is necessary under GST law to prevent misuse.
• Jurisdictional errors in issuing SCNs can lead to their quashing by the courts.

Conclusion

This landmark Supreme Court judgment reinforces the principle that tax liability cannot be imposed arbitrarily on employees without clear evidence of their involvement and benefit from the alleged evasion. The ruling sets an important precedent for future cases involving GST law interpretations and protects employees from unjust tax penalties.