Interim Relief on Retrospective GST Penalty under Section 122(1A) of CGST Act
By Author | July 22, 2025
Tags: Delhi High Court, GST Judgements
Delhi High Court Stops Coercive Action for Pre-2021 GST Transactions
The Delhi High Court has ruled that authorities cannot take coercive action against a taxpayer penalized under Section 122(1A) of the CGST Act for transactions carried out before January 1, 2021. This interim relief came in response to a petition filed by Parag Garg.
Case Overview: Parag Garg v. Common Adjudicating Authority
In W.P.(C) 5643/2025, Parag Garg challenged the penalty imposed on him under Section 122(1A). He argued that the provision took effect only from January 1, 2021, and should not apply to earlier transactions.
Meanwhile, M/s Sanskriti EXIM Private Limited, the primary taxable person involved, filed a related petition—W.P.(C) 929/2025—to contest both the show cause notice and the penalty. Since both cases deal with the same legal question, the Court decided to hear them together.
Central Question: Can Section 122(1A) Be Applied Retroactively?
The core legal issue was whether authorities can use Section 122(1A) to penalize actions that occurred before its effective date.
Court’s Interim Ruling and Observations
The Delhi High Court acknowledged that the retrospective use of Section 122(1A) is under review in multiple cases. It ordered that the Parag Garg petition be heard along with the Sanskriti EXIM matter.
More importantly, the Court barred the government from taking coercive action against the petitioner until the issue is resolved. It also gave the respondents time until July 15, 2025, to file their counter affidavit.
Understanding Section 122(1A) of the CGST Act
Inserted through the Finance Act, 2020, Section 122(1A) took effect on January 1, 2021. It imposes penalties on persons who:
- Retain the benefit of tax evasion, and
- Cause a registered taxpayer to commit violations listed in Section 122(1).
The provision states:
“Any person who retains the benefit of a transaction… shall be liable to a penalty equivalent to the tax evaded or input tax credit availed of or passed on.”
Different Judicial Interpretations
Bombay High Court’s View: Prospective Only
In Amit Manilal Haria v. Joint Commissioner of CGST & CE, WP No. 5001/2025, the Bombay High Court held that the penalty provision cannot be applied to periods before January 1, 2021. It emphasized that:
- The law must not operate retroactively unless explicitly stated.
- Penalties require evidence showing the accused person benefited from the violation.
Delhi High Court’s Alternate Stance
In a separate case—Bhupender Kumar v. Additional Commissioner, CGST Delhi North—the Delhi High Court ruled that Section 122(1A) could apply retrospectively if a show cause notice had already been issued before the effective date.
Why This Interim Order Matters
This case underscores the legal uncertainty surrounding retrospective tax penalties under GST. The interim relief for Parag Garg aligns with fundamental legal principles, particularly the need for fairness and due notice in penal actions.
Until a unified position emerges—likely through a Supreme Court judgment—taxpayers should remain vigilant and consider legal remedies when facing penalties for pre-2021 actions.
