Penalties imposed on company’s top brass over ITC

The Directorate General of Goods and Services Tax Intelligence (DGGI) has sent out over 300 show-cause notices to promoters, directors and top management of companies. It has also sought to impose penalties, as high as 100%, for wrongfully availing input tax credit.

These notices, sent to top management in the first week of August for the financial years 2017-18 and 2018-19, are already being challenged by recipients who have moved various high courts seeking a stay.

Tax officials say notices were sent in cases where the role of management in wrongfully availing ITC was clearly established.  The notices were sent under Section 122(1A) of Central GST ACT and everyone can contest or respond to it.

The section 122(1A) of the CGST Act, introduced in 2020, says those who facilitate tax evasion or engage in malpractices by directly participating in, assisting, or encouraging the issuance of invoices without actual supply of goods or services faces a penalty equal to the amount of tax evaded or Input Tax Credit (“ITC”) availed of or passed on.

In one instance, tax authorities have imposed a penalty of Rs 102 crore, equal to the evasion amount by the company, on the managing director of the company.

Industry disagrees with tax authorities’ stance. They contend that individuals can be subject to personal penalties only under specified exceptional circumstances and rarest of rare cases where the intent to gain from tax fraud is well established.

It should not become a tool to harass Senior Officials of Companies or Firms (such as Managing Directors, CEOs, CFOs, Partners etc.) unless there is a clear indication that a specified fraudulent transaction has been undertaken at their instance and they have directly retained the benefit of such a transaction.

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