If no personal gain is proven, such penalties could face constitutional challenges in appellate forums or high courts.
Personal Penalties on Executives: The Directorate General of Goods and Services Tax Intelligence (DGGI) has recently issued thousands of notices to various companies, their directors, and promoters regarding the wrongful availment of Input Tax Credit (ITC). According to sources, this growing tax dispute stems from vendors’ failure to remit taxes to the government and other concerns around credit availment and utilization.
A critical question arising from this situation is whether service recipients can be held liable for tax payments, even when they have not committed any wrongdoing. The ongoing investigations underline the complexities surrounding tax compliance and the responsibilities shared across the supply chain.
One key issue, as evidenced by the show cause notices, is the imposition of personal penalties, especially in the financial year 2017-18. By early August, several directors and promoters received notices imposing penalty as high as 100% of the disputed tax amount. Such actions have triggered unrest in the industry, as the finance minister has emphasized that taxpayers should not face undue harassment.
Experts are now debating the legality of such high penalties. Abhishek A Rastogi, founder of Rastogi Chambers, who has filed petitions challenging these personal penalties, explains that such penalties should only apply in rare circumstances where individuals have personally benefited from the wrongful tax credit. If no personal gain is proven, he asserts, the penalties could face constitutional challenges in appellate forums or high courts.
“The burden of proof lies with the revenue authorities, who must demonstrate malafide intent. If no individual benefit is proven, such penalty is unlikely to hold up in court,” adds Rastogi.
The controversy surrounding these hefty penalties highlights the urgent need for clear guidelines on the role and responsibility of company executives in tax matters, particularly in cases where the fault lies with vendors or third parties.
Also Read: Madras High Court Permits One-Day GSTR-3B Delay, Quashes ITC Reversal Notice
READ MORE
GST Slab Changes Delayed: GoM Members Hint at Lack of Consensus on Reforms