Non-Taxable Persons Can Appeal GST Demands: Delhi HC Orders Department to Set Up Process for Ex-Directors to file Appeal [Read Order]

The Delhi High Court, in a matter where a GST ( Goods and Services Tax ) demand was raised against Former Directors, ordered the GST department to set up the mechanism to file an appeal. It was ruled that the non-taxable persons can appeal and directed that the appeal shall not be dismissed on ground of limitation and shall be adjudicated on merits.

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The petitioners, Gurudas Mallik Thakur and Dinesh Kumar Raghav, were directors of M/s Planman HR Private Limited, a company engaged in manpower recruitment. They challenged an Order-in-Original dated January 23, 2025, which had imposed substantial penalties on them following investigations that revealed inadmissible CENVAT credit of approximately Rs. 22.41 crores and short payment of GST amounting to Rs. 40.61 crores.

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The directors attempted to distance themselves from the company's operations, claiming that one Mr. Arindam Chaudhary, who was the promoter and 90% shareholder, was the primary decision-maker. They also stated they had resigned from the company in 2020. Despite these claims, the adjudicating authority imposed penalties on both the company and its directors.

The petitioners' counsel argued that as they were not "taxable persons" under Sections 122 and 122(1A) of the CGST Act, no liability could be fastened on them. They relied on precedents including the Bombay High Court's decision in Amit Manilal Haria v. The Joint Commissioner of CGST & CE & Ors. and Shantanu Sanjay Hundekari v. Union of India.

The Department countered that the petitioners were active directors and that Section 122(1A) uses the term "any person," which extends beyond just taxable persons. They cited the Bombay High Court's ruling in Bharat Parihar v. State of Maharashtra to support this interpretation.

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The High Court, while hearing the matter, observed that determining the exact role played by the directors and whether they derived any benefit would require factual assessment based on records that should be placed before the Appellate Authority. The Court noted that the impugned order is appealable under Section 107 of the CGST Act, which allows "any person" (not just taxable persons) to file an appeal.

Additionally, the bench observed that the impugned order makes it evident that the petitioners, along with Mr. Arindam Chaudhary and Mr. Varun Khanna, consistently avoid taking responsibility for decisions related to the availment of Input Tax Credit (ITC) and the non-filing of GST returns.

The bench clarified that the decision on which the Petitioners rely upon i.e. Amit Manilal Haria, there is a clear finding to the effect that the Petitioner was an employee of the company and was not a director who may have taken any benefit. Moreover, the said order is merely an interim order.

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The Court also noted that the CGST Act makes a clear distinction between "taxable person" and "any person," with Section 2(84) defining "person" broadly to include individuals without limitations. This suggests that penalties under certain sections could apply to directors even if they are not directly registered as taxable persons.

Rather than deciding the matter conclusively, the Court directed the petitioners to approach the appropriate Appellate Authority, where a closer scrutiny of facts could determine who was responsible for running the company and making decisions related to invoices and payments.

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Considering the submission of the petitioner’s counsel that for a non-taxable person it is not possible to file an appeal through the portal, the bench of Justices Prathiba Singh and Rajneesh Kumar Gupta directed the department to create a mechanism to file the appeal.

It was directed to the Department to communicate to the Petitioners within two weeks the mechanism in which they can avail of their appellate remedies. Upon receiving the intimation, the Petitioners shall file the appeal within 30 days.

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To Read the full text of the Order CLICK HERE

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