28 March 2024 Administrative Law >> Constitution & Law Procedure   |   Employee Related >> Corporate Law   |   GST >> Corporate Law   |   GST >> Tax Laws  

In a recent writ petition filed before the High Court of Judicature at Bombay, four employees (hereinafter "Petitioners") of M/s. Maersk Line India Pvt. Ltd. (MLIPL) challenged a show cause notice issued by the Joint Director, Directorate General of Goods and Service Tax Intelligence (DG GST Intelligence). The impugned notice demanded a penalty of ?3,731 crore from the Petitioners for alleged tax evasion by Maersk A/S, a foreign company.

Central Contentions of the Petitioners:

· Lack of Jurisdiction: The Petitioners contested the tax authorities' jurisdiction to impose the penalty, arguing they were not "taxable persons" under the Central Goods and Services Tax Act (CGST Act). The Act defines a taxable person as someone liable to register under its provisions, typically businesses exceeding a specific turnover threshold. As mere employees, the Petitioners argued they did not qualify as taxable persons under the CGST Act.

· Misapplication of Section 122(1A): The Petitioners further challenged the applicability of Section 122(1A) of the CGST Act invoked in the show cause notice. This section empowers authorities to penalize individuals who benefit from transactions designed to evade tax payments. The Petitioners contended that Section 122(1A) only applies to taxable persons, a category they did not fall under.

· Limited Scope of Employment: Finally, the Petitioners distanced themselves from any direct responsibility for Maersk A/S's business operations. They asserted their role solely as employees of MLIPL, acting as steamer agents for the foreign company. Their duties, they claimed, were limited to assisting Maersk A/S in complying with Indian tax laws and responding to inquiries from tax authorities.

Conclusion:

The High Court, after considering the arguments presented, quashed the show cause notice. The Court's reasoning likely centered on the Petitioners' lack of status as taxable persons under the CGST Act and the inapplicability of Section 122(1A) in their case. This decision underscores the importance of distinguishing between employees and the companies they work for, particularly regarding tax liabilities.

Significance:

This case sets a precedent for similar situations where tax authorities might attempt to extend liability to employees for alleged tax transgressions of their employers. The Bombay High Court's ruling clarifies that establishing a clear distinction between employee roles and company operations is crucial in such scenarios.

  CENTRAL GOODS AND SERVICES TAX ACT, 2017    COMPANIES ACT, 2013