Bombay High Court grants interim relief to Shemaroo Entertainment in Rs 400 crore GST case

In a case that could delve into the personal liabilities of the employees of a firm for goods and services tax (GST), the Bombay High Court has given interim relief to Shemaroo Entertainment in a matter revolving around tax penalties of Rs 400 crore imposed under the Central GST on three senior officers of the firm.

The Bombay HC has granted interim protection to the petitioners and has restrained the tax authorities from taking any coercive action against the employees. The matter is being heard by a Division Bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla and has observed that the prima facie view of the Court was in favour of the petitioners, indicating that the contentions raised warranted deeper consideration at the final hearing.

“…we find that a strong prima facie case is made out. We also find that the balance of convenience is in favour of the petitioners,” the Court observed. The matter will now be heard on June 10.  

Tax authorities had sent a notice to the three officials including Chief Financial Officer, Chief Executive Officer and Joint Managing Director of Shemaroo Entertainment for allegedly falsely claiming input tax credit of Rs 70.25 crore.

The tax authorities-imposed Section 122(1A) of the CGST Act under which individuals who cause a company to commit tax evasion or issue incorrect invoices can be held personally liable for penalties equivalent to the tax amount. In this case, it was contended that the employees facilitated transactions that led to tax liabilities and, hence, were personally liable for equivalent penalties. Consequently, total penalty of Rs 400 crore was imposed on the three officials.

The petitioners, represented by Abhishek A Rastogi, founder of Rastogi Chambers, argued that the penal provisions under Section 122(1A) of the CGST Act came into force only from January 1, 2021. “Therefore, any imposition of penalties for acts committed prior to this date was unconstitutional and devoid of legal authority,” they contended.

Rastogi also highlighted that there were serious inconsistencies between the period covered in the show-cause notices and the periods referred to in the final penalty orders, undermining the procedural fairness and legality of the penalties. The petitioners also said that the penalties were grossly disproportionate, both in relation to the alleged tax liabilities and the role of the employees.