JANUARY 29, 2025

By Vijay Kumar

SHANTANU Sanjay Hundekari, Senior Tax Operations Manager of Maersk Line India Pvt. Ltd. (MLIPL) must be very happy, for he got an award from the Supreme Court, just two days before this Republic Day, which could be more precious than all the Padma awards and gallantry awards.

Shantanu Sanjay Hundekari, must have been a very worried person till he got his Republic Day gift. He is a citizen of India, an employee of M/s. Maersk Line India Pvt. Ltd , a company having its principal place of business at Mumbai. Employed as Taxation Manager with MLIPL from 12 December 2013, he was appointed as Steamer agent of Maersk A/S (for short "Maersk"), a company incorporated under the laws of Denmark, which is inter alia engaged in the shipping business involving containerized transportation of goods, through vessels across the globe.

Shantanu in his capacity as Taxation Manager rendered assistance to Maersk in its compliances with taxation laws including GST. He was not in-charge of the day-today business of Maersk. He, acting on behalf of Maersk also volunteered, to assist the investigations being conducted by the tax authorities, in responding to the summons that were issued to Maersk, to present its evidence and to furnish list of witnesses whose statements could be recorded.

On 19 September 2023, Shantanu got a shocking Show Cause Notice from the Directorate General of Goods and Services Tax Intelligence . What is so shocking about a Show Cause Notice? Many managers do get Show Cause Notices routinely from the revered ‘Directorate General of Goods and Services Tax Intelligence'. What must have surprised Shantanu was that the Notice asked him to show cause why penalty amounting to 3731,00,38,326/- (yes, 3731 CRORES) should not be imposed upon him under Section 122(1A) of the CGST Act, 2017.

For what?

He is called upon to show cause as to why penalty equivalent to the tax evaded by Maersk amounting to Rs.3731,00,38,326/- be not imposed upon him on the allegation that as Maersk had committed offences under Section 122(1)(i), and as to why, he should not be proceeded against "for indulging" in offences for wilful suppression of the facts resulting in evasion of GST by Maersk.

It is alleged that he has committed offences, which led to the evasion of the GST by Maersk, for the reason that the invoices raised by Maersk on its supplies were not in accordance with the provisions of the CGST Act, 2017.

The entire basis for issuance of the notice is the evasion of GST by Maersk and allegedly payable by Maersk.

Read this story, I wrote about nine months ago. GST Penalty of Rs. 3731 Crores on an employee!

Mr. Shantanu Sanjay Hundekari, Senior Tax Operations Manager of Maersk Line India Pvt. Ltd. (“MLIPL”) had the singular distinction of receiving a Notice from the Directorate General of Goods and Services Tax Intelligence, dreadfully referred to as DGGI, to show cause as to why penalty amounting to 3731,00,38,326/- (yes, 3731 CRORES) should not be imposed upon him under Section 122(1A) of the CGST Act, 2017.

Assuming he gets a salary of one crore rupees per annum (which is most unlikely), that is his total salary for 3731 years! The charge was that his company, Maersk had evaded GST and he was liable to this small penalty.

If this is from a stand-up comedy show, perhaps you would go for a calculator to know the number of zeros in the astronomical demand, before starting to laugh. But this is reality.

There was no way Shantanu Sanjay Hundekari could pay this kind of money and so he approached the Bombay High Court. Mr. Harish Salve, the top lawyer of the country, no, the world appeared for him and submitted:

(i) The impugned show cause notice is wholly arbitrary and illegal, inasmuch as, in foisting on the petitioner a penalty of Rs.3,731 crores purportedly under section 122(1A) of the CGST Act, the basic ingredients of the said provision are not satisfied, as there was no material to the effect that primary benefit of the ITC was in any manner availed by the petitioner. The show cause notice is thus an abuse of the powers vested with the concerned officer, which is in fact designed to threaten and intimidate junior employees of the company, so that they do not assist the assessee in the proceedings initiated by the respondents.

(ii) None of the essential requirements under Section 122(1A) or under section 137 of CGST Act would stand attracted, as the petitioner is not a taxable person within the meaning of Section 2(107) of the CGST Act, who could be a person registered or liable to be registered under section 22 or 24 of the CGST Act.

(iii) The impugned show cause notice is not only an abuse of the process of law but it is violative of Articles 21, 14 and 19(1)(g) of the Constitution.

The question before the High Court was whether the invocation of the provisions of Section 122(1-A) of the CGST Act as also Section 137(1) and 137(2) would stand attracted in their applicability to the petitioner, so as to confer jurisdiction to issue the impugned show cause notice against the petitioner, who is merely an employee of MLIPL.

The Court observed: 2024-TIOL-518-HC-MUM-GST

1. A plain reading of section 122 clearly implies that it provides for levy of penalty for “certain offences” by taxable person.

2. It provides that any person (who would necessarily be a taxable person), retains the benefit of the transactions and at whose instance, such transaction is conducted, “shall be liable to a penalty of an amount equal to the tax evaded or input tax credit availed of or passed on”. This necessarily implies that it applies to a taxable person. 3. Such person can only be a taxable person as defined under Section 2(107) of the CGST Act, who would be in a legal position, to retain the benefit of tax on the transaction covered and at whose instance, such transaction is conducted. 4. In the absence of these basic elements being present, any show cause notice of the nature as issued, would be rendered illegal, for want of jurisdiction as also would stand vitiated by patent non application of mind. 5. Thus, the designated officer invoking the said provision against the petitioner is an act wholly without jurisdiction. 6. A provision, which ex-facie is inapplicable to the petitioner who is an individual, has been invoked and applied in issuing the impugned show cause notice. 7. Section 137 concerns “Offences by Companies”. 8. As to how Section 137 can form part of any invocation against the petitioner that too along with the provision of Section 122(1-A), qua the petitioner cannot be comprehended, this more particularly for the reason that the show cause notice is issued under section 74 of the CGST Act. Certainly Section 74 is not a penal provision, whereas Section 137 falls under Chapter XIX which provides for ‘offences and penalties.

9. Thus, as to how such penal provision in Section 137 could be foisted against the petitioner, when the show cause notice is itself a demand cum show cause notice, is also quite intriguing, which in our opinion, also touches the very jurisdiction in issuance of such notice. This aspect is not explained by the respondents much less satisfactorily.

And the High Court held:

1. The basic jurisdictional requirements/ingredients are not attracted for issuance of the show cause notice under Section 74 of the CGST Act so as to inter alia invoke Section 122(1-A) and Section 137 against the petitioner.

2. Even otherwise, it is ill-conceivable to read and recognize into the provisions of Section 122 and Section 137, of the CGST Act any principle of vicarious liability being attracted.

3. The impugned show cause notice is rendered bad and illegal, deserving it to be quashed and set aside.

The High Court further observed:

1. It is highly unconscionable and disproportionate for the concerned officer of the Revenue to demand from the petitioner an amount of Rs.3731 crores.

2. The petitioner would not be incorrect in contending that the purpose of issuing the show cause notice to the petitioner who is merely an employee, was designed to threaten and pressurize the petitioner.

While allowing the petition, the High Court was compassionate and did not impose any cost on the Revenue.

As of now Mr. Shantanu Sanjay Hundekari can sleep peacefully assured that he does not owe Rs.3731 crores to the Government – that is if the Revenue does not appeal to the Supreme Court!

I had mentioned that our Shantanu could sleep peacefully, if the GST Department did not take the matter to the Supreme Court. But no, this was not a case to be left at that – after all, revenue involved was Rs.3731 crores! So, the Government took the matter to the Supreme court.

The Supreme Court observed on January 24, 2025, - 2025-TIOL-05-SC-GST

The High Court after assigning cogent reasons took the view that the respondent – herein was merely an employee of the Company and he could not have been fastened with the liability of Rs.3731 Crore.

We see no good reason to interfere.

So, the SLP was dismissed. Shantanu just had the tax authorities thinking that he was up to his neck in debt for 3731 crores! And guess what? He doesn't owe a single rupee!

This demand of Rs. 3731 crores on an individual employee for the alleged offence of his company, is more than the annual income of Tirupati Balajee temple; it can buy about 250 players for the IPL; It can take care of the health budget of a large state like Maharashtra; it could finance the construction of a new railway line. A recent blockbuster movie cost less than 500 crores – you can make eight such movies.

Shantanu Sanjay Hundekari's near-miss with such a liability encourages a smile, it is as if he was faced with an almost mythical dragon of debt—a challenge he navigated with enormous success.

The huge demand is not appalling; it is just amusing.

Until next week