In a recent development, the Bombay High Court has ruled in favour of four employees of Maersk Line, the Indian arm of a Denmark-based shipping giant.
The high court struck down a notice issued by the GST Intelligence that sought to impose a hefty tax liability and penalty of ₹3,731 crore on these employees, despite the tax being allegedly payable by their employer.
The employees had challenged the notices issued by the Joint Director of GST Intelligence in September 2023, which demanded an explanation as to why a penalty equivalent to the tax allegedly evaded by Maersk should not be imposed on them.
According to Senior advocate Harish Salve, representing the employees, they were granted power of attorney to represent the foreign company before tax authorities due to its absence of establishment in India. He argued that the employees did not benefit from the Input Tax Credit (ITC) of ₹1,561 crore, making it unjust to impose tax or penalties on them under the CGST Act.
Salve emphasized that the employees were not involved in decision-making for Maersk nor were they responsible for its business operations. Their role was solely to represent the Denmark-based company before the GST Intelligence authorities, responding to queries during the probe initiated in July 2021 regarding alleged wrongful tax credit availing by Maersk.
However, the GST department contended that the employees held responsibilities for Maersk’s Indian business and therefore could not evade their involvement. They alleged that the employees were complicit in the company’s tax evasion.
In its verdict, the high court division bench of Justice GS Kulkarni and Justice Firdosh Pooniwalla sided with the employees, ruling that the penal provisions of the GST Act apply only to ‘taxable persons’ benefiting from covered transactions. The bench clarified that employees of a group company like Maersk cannot be considered ‘taxable’ or ‘registered persons’ under the CGST Act to retain such benefits.
The high court bench concluded that the officer’s invocation of this provision against the employees was unjustified, leading to the striking down of the show cause notice. The decision emphasized that applying a provision inapplicable to individual employees was beyond jurisdiction.
This ruling of bombay high court marks a significant win for the employees of Maersk Line against the substantial GST penalty demand, highlighting the need for careful consideration of individual roles and responsibilities in tax matters.
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