Facts of the Case

The petitioner, Vivek Kumar, an individual non-taxable entity and Director of A & T Security Services Pvt. Ltd., challenged the appellate order dated 16th May, 2025 passed by the Commissioner (Appeals), CGST Delhi West, whereby penalties were upheld against the company and its directors under Sections 122 and 122(3) of the CGST Act.

An inspection conducted on 18th March, 2019 resulted in issuance of a show cause notice dated 12th September, 2019 proposing cancellation of GST registration on the ground of non-filing of returns. The petitioner submitted that returns were duly filed. Nevertheless, the registration was cancelled on 29th November, 2019 with zero demand. The cancellation order was set aside in appeal on 27th August, 2021 subject to filing of pending returns and payment of dues. Pursuant thereto, the company deposited a total sum of ₹2,01,20,299 and the GST registration was restored.

Thereafter, a fresh show cause notice dated 31st July, 2024 was issued alleging fraudulent availment of input tax credit. After filing reply and attending personal hearing, an order-in-original dated 31st January, 2025 imposed penalties under Section 122 of the CGST Act. The appellate authority by order dated 16th May, 2025 upheld penalties against the company and its directors, including the present petitioner.

Issues Involved

Whether penalties imposed on a director under the CGST Act could be sustained without considering substantial tax payments already made prior to issuance of the show cause notice, whether the appellate authority failed to consider material facts on record, and whether the petitioner should be permitted to pursue the statutory appellate remedy without any further pre-deposit.

Petitioner’s Arguments

The petitioner contended that more than ₹2.01 crores had already been deposited by the company in proceedings relating to restoration of GST registration much prior to issuance of the show cause notice dated 31st July, 2024. It was argued that this material fact was specifically disclosed in the reply dated 2nd September, 2024 but was ignored by both the adjudicating authority and the appellate authority. The petitioner submitted that in view of Section 73 of the CGST Act, penalties on directors were unsustainable and required reconsideration.

Respondent’s Arguments

The Revenue, through its Senior Standing Counsel, fairly conceded that the appellate order dated 16th May, 2025 did not appear to have considered the aspect of prior payment of ₹2,01,20,299 made by the petitioner company.

Court Order / Findings

The Delhi High Court observed that the documents placed on record clearly evidenced substantial payments made by the petitioner company prior to issuance of the show cause notice and that this aspect was also mentioned in the reply filed by the petitioner. The Court held that non-consideration of such material facts constituted a lapse in adjudication.

The Court further noted that the impugned order dated 16th May, 2025 was appealable before the GST Appellate Tribunal, which had since been constituted and was functional. The Tribunal was directed to consider all documents evidencing prior payments while adjudicating the appeal. The Court observed that in terms of Section 73 of the CGST Act, penalties imposed on directors may not sustain, and even penalties against the company would require reconsideration in light of earlier payments.

Important Clarification

The High Court clarified that it had not examined the merits of the allegations and that all contentions of the petitioner were left open to be urged before the GST Appellate Tribunal. It was further clarified that considering the substantial amount already deposited, the petitioner should not be required to make any further pre-deposit for availing the appellate remedy.

Final Outcome

The writ petition was disposed of with liberty to the petitioner to file an appeal before the GST Appellate Tribunal by 25th December, 2025. The Tribunal was directed to entertain the appeal on merits without dismissing it on the ground of limitation and without insisting on any further pre-deposit. All pending applications were disposed of accordingly

SOURCE LINK: https://delhihighcourt.nic.in/app/showFileJudgment/75418112025CW169062025_175814.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.