The Bombay Court has quashed the improper Show Cause Notice ( SCN ) issued to employees of Maersk Line India of Rs. 3731 Cr Demand assuming that the employees have benefitted from the transactions made by the company. The bench stated that issuing the SCN to the petitioner, who is only an employee, appeared to be a tactic aimed at intimidating and pressuring the petitioner.
The bench of Justice Firdosh P. Pooniwalla and Justice G.S. Kulkarni observed that “as to how such penal provision in Section 137 could be foisted against the petitioner, when the show cause notice is itself a demand cum show cause notice, is also quite intriguing, which in our opinion, also touches the very jurisdiction in issuance of such notice. This aspect is not explained by the respondents much less satisfactorily.”
The court has considered the 4 petitions involving a common challenge and the facts were also similar. The petitioners in each of these petitions are individuals. They are employees of a shipping company, who have been foisted with a SCN under Section 74 of the Central Goods and Services Tax Act, 2017 whereupon a demand of Rs.3731,00,38,326/- towards penalty is being demanded from them being the tax amount stated to be defaulted by the employer.
The bench considered the petition filed by Shantanu Sanjay Hundekari, an Indian citizen and an employee of M/s. Maersk Line India Pvt. Ltd. ( MLIPL ). He served as a Taxation Manager for Maersk, a Danish shipping company. The petitioner assisted Maersk with tax compliance, including GST, and held power of attorney to represent Maersk before tax authorities.
The petitioner asserted he wasn’t personally benefiting from any tax credit and challenged allegations against Maersk invoking penalties and prosecution threats under CGST Act sections 122(1A) and 137. He explains Maersk’s operations and its need for multiple GST registrations in different Indian states due to legal requirements.
It was submitted that the investigations initiated in July 2021 focused on Maersk’s distribution of input tax credit, particularly for port handling, terminal handling, and transportation services. The petitioner, as a representative of Maersk, cooperated with authorities, providing information and appearing for questioning six times between December 2021 and May 2023.
The petitioner emphasized that he wasn’t a decision-maker for Maersk and merely facilitated communication with tax authorities based on legal advice obtained by Maersk. He clarifies his role was to assist and cooperate with investigations, providing explanations regarding input tax credit legitimately claimed by Maersk for services procured from third-party vendors.
The petitioner contended that the show cause notice primarily targets Maersk, demanding a significant sum, which, according to him, pertains to issues already addressed by Maersk, including payments made with interest and penalties.
Further contended that the introduction of Section 122(1A) in the CGST Act aimed to tackle fake invoices. They assert being wrongly implicated in a show cause notice, alleging they retained benefits from GST evasion by Maersk, despite not having personal involvement. They contest the imposition of a hefty penalty under Section 122(1A) and the invocation of Section 137 against them.
Mr. Harish Salve, representing the petitioners, argued :
Mr. Sharma, representing the respondents, argued in favour of the impugned show cause notice. He emphasised that the petitioner must address all concerns raised in the notice. It was also contended that since the petitioner was closely involved with Maersk’s affairs, he cannot disclaim responsibility for any revenue loss as outlined in the notice.
Referring to specific sections of Mr. Shyam Kanu Mahanta’s affidavit, Mr. Sharma asserted that the petitioner, acting as Maersk’s power of attorney holder and Senior Tax Operations Manager, had a duty to ensure compliance with GST laws.
Given the substantial amount of GST involved, Mr. Sharma suggested the petitioner may have been complicit in tax evasion. Moreover, Mr. Sharma pointed out that Maersk has failed to settle its tax obligations, further implicating the petitioner.
The respondent’s counsel highlighted the respondent’s statement indicating that the final decision on the show cause notice rests with the adjudicating authority, suggesting that any objections or factual disputes can be addressed during the adjudication process. Therefore, Mr. Sharma argued against interference in the ongoing proceedings, asserting that the SCN should be pursued and resolved accordingly.
On analysis of the SCN, the bench noted that the show cause notice alleged that the petitioner, in his role as Senior Tax Operations Manager and Authorized Person of Maersk, is liable for penalties amounting to Rs. 3731,00,38,326 for alleged GST evasion by Maersk. However, the petitioner argued that the provisions invoked against him, specifically Sections 122(1-A) and 137 of the CGST Act, do not apply as he is not a taxable person under the law.
The High Court in its judgment stated that “it is clear from the relevant contents of the show cause notice that the basic jurisdictional requirements / ingredients, are not attracted for issuance of the show cause notice under Section 74 of the CGST Act so as to inter alia invoke Section 122(1-A) and Section 137 against the petitioner. Even otherwise, it is ill-conceivable to read and recognize into the provisions of Section 122 and Section 137, of the CGST Act any principle of vicarious liability being attracted. There could be none. Thus, Respondent no. 3 clearly lacks jurisdiction to adjudicate the show cause notice in its applicability to the petitioner. Thus qua the petitioner, the impugned show cause notice is rendered bad and illegal, deserving it to be quashed and set aside.”
The court found it unjust and disproportionate for the revenue officer to demand Rs. 3731 crores from the petitioner, especially when this amount is alleged to be Maersk’s liability. Issuing the SCN to the petitioner, who is only an employee, appeared to be a tactic aimed at intimidating and pressuring the petitioner.
The Bombay High Court further emphasised that the remarks made in this judgment pertain solely to the SCN directed at the petitioner and do not reflect any stance on the applicability of the notice to other parties involved. Thus, all the 4 petitions were allowed.
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