Employee gets ₹3,731 crore GST penalty demand; Bombay HC strikes it down

Should an employee of a company be held responsible for forking out penalties related to tax demands raised on the company by revenue authorities? Goods and Services Tax (GST) enforcement officials believed so when they slapped a demand last September for a ₹3,731 crore penalty on a taxation manager and other employees of global logistics major Maersk for alleged tax evasion of the same amount by the company.

Should an employee of a company be held responsible for forking out penalties related to tax demands raised on the company by revenue authorities? Goods and Services Tax (GST) enforcement officials believed so when they slapped a demand last September for a ₹3,731 crore penalty on a taxation manager and other employees of global logistics major Maersk for alleged tax evasion of the same amount by the company.

In a judgment that could bring relief to other employees at firms in the midst of GST disputes, the Bombay High Court last week struck down the demand and show cause notices issued by the Directorate General of Goods and Service Tax Intelligence in the case, terming them bad and illegal.

Terming it “highly unconscionable and disproportionate” for revenue officers to hold employees responsible for liabilities of the company, a division bench of Justice GS Kulkarni and Justice Firdosh P Pooniwalla held it would not be incorrect to contend that the purpose of issuing the show cause notice to the petitioner who is merely an employee, was designed to threaten and pressurize them.

GST officials had alleged that a sum of ₹1561 crore was wrongly utilized as Input Tax Credit by Maersk and those credits were wrongfully distributed. While Maersk is a foreign company which does not have any employee or fixed establishment in India, solely for the purpose of representing and acting on its behalf before the Indian tax authorities, the firm had given the power of attorney to some employees of its steamer agent in India, incorporated as Maersk Line India Pvt. Ltd.

“This ruling is significant for employees of large-sized businesses, where potentially interpretative GST positions are adopted by employees without any malafide intention. Such imposition of substantial penalties in recent investigations had caused lot of unrest amongst such employees,” remarked Abhishek Jain, KPMG’s indirect tax partner and head.