Bombay High Court quashes GST Authority’s improper SCN, saving employees of Maersk Line India from Rs. 3731 Cr demand

MUMBAI : The Bombay Court has quashed the improper Show Cause Notice ( SCN ) issued to employees of Maersk Line India of Rs. 3731 Cr Demand assuming that the employees have benefitted from the transactions made by the company. The bench stated that issuing the SCN to the petitioner, who is only an employee, appeared to be a tactic aimed at intimidating and pressuring the petitioner.

The bench of Justice Firdosh P. Pooniwalla and Justice G.S. Kulkarni observed that “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.

The court has considered the 4 petitions involving a common challenge and the facts were also similar. The petitioners in each of these petitions are individuals. They are employees of a shipping company, who have been foisted with a SCN  under Section 74 of the Central Goods and Services Tax Act, 2017 whereupon a demand of Rs.3731,00,38,326/- towards penalty is being demanded from them being the tax amount stated to be defaulted by the employer.

The bench considered the petition filed by Shantanu Sanjay Hundekari, an Indian citizen and an employee of M/s. Maersk Line India Pvt. Ltd. ( MLIPL ). He served as a Taxation Manager for Maersk, a Danish shipping company. The petitioner assisted Maersk with tax compliance, including GST, and held power of attorney to represent Maersk before tax authorities.

The petitioner asserted he wasn’t personally benefiting from any tax credit and challenged allegations against Maersk invoking penalties and prosecution threats under CGST Act sections 122(1A) and 137. He explains Maersk’s operations and its need for multiple GST registrations in different Indian states due to legal requirements.

It was submitted that the investigations initiated in July 2021 focused on Maersk’s distribution of input tax credit, particularly for port handling, terminal handling, and transportation services. The petitioner, as a representative of Maersk, cooperated with authorities, providing information and appearing for questioning six times between December 2021 and May 2023

The petitioner emphasized that he wasn’t a decision-maker for Maersk and merely facilitated communication with tax authorities based on legal advice obtained by Maersk. He clarifies his role was to assist and cooperate with investigations, providing explanations regarding input tax credit legitimately claimed by Maersk for services procured from third-party vendors.

The petitioner contended that the show cause notice primarily targets Maersk, demanding a significant sum, which, according to him, pertains to issues already addressed by Maersk, including payments made with interest and penalties.

Further contended that the introduction of Section 122(1A) in the CGST Act aimed to tackle fake invoices. They assert being wrongly implicated in a show cause notice, alleging they retained benefits from GST evasion by Maersk, despite not having personal involvement. They contest the imposition of a hefty penalty under Section 122(1A) and the invocation of Section 137 against them.

Mr. Harish Salve, representing the petitioners, argued :

1. The show cause notice is arbitrary and illegal as it imposes a hefty penalty without evidence of the petitioner benefiting from the alleged offence.
2. The petitioner, being a power of attorney holder for Maersk, shouldn’t face such a disproportionate penalty.
3. Section 137 shouldn’t apply to the petitioner as they weren’t responsible for Maersk’s business, and there are no allegations to support its invocation.
4. The notice lacks essential requirements under Sections 122(1A) and 137, and the allegations against the petitioner are unsubstantiated.
5. Section 137 is inapplicable to the case, and the notice violates constitutional rights. Therefore, it should be quashed and set aside.

Mr. Sharma, representing the respondents, argued in favour of the impugned show cause notice. He emphasised that the petitioner must address all concerns raised in the notice. It was also contended that since the petitioner was closely involved with Maersk’s affairs, he cannot disclaim responsibility for any revenue loss as outlined in the notice.

Referring to specific sections of Mr. Shyam Kanu Mahanta’s affidavit, Mr. Sharma asserted that the petitioner, acting as Maersk’s power of attorney holder and Senior Tax Operations Manager, had a duty to ensure compliance with GST laws.