Bombay High Court Grants Interim Relief to Shemaroo Entertainment in ₹400 Crore GST Case
Tax Authorities Restrained from Taking Coercive Action Against Key Employees
In a significant development concerning corporate tax liability, the Bombay High Court has provided interim protection to senior executives of Shemaroo Entertainment in an alleged ₹400 crore GST penalty case. The court has temporarily restrained tax authorities from taking coercive measures against the company’s employees while the case is under judicial review.
Background: ₹70.25 Crore Input Tax Credit Dispute
The dispute revolves around allegations by tax authorities that Shemaroo Entertainment falsely claimed input tax credit (ITC) of ₹70.25 crore. Notices were issued to three senior executives — the Chief Executive Officer (CEO), Chief Financial Officer (CFO), and Joint Managing Director — under Section 122(1A) of the Central Goods and Services Tax (CGST) Act.
This section allows for personal liability and penalties for individuals who are deemed to have caused a company to commit tax evasion or issue incorrect invoices. In this instance, the officials were allegedly involved in transactions leading to the GST liability, and a total penalty of ₹400 crore was levied.
Bombay HC Observes Prima Facie Case in Favor of Petitioners
The Division Bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla acknowledged a strong prima facie case in favor of the petitioners. The court stated:
We find that a strong prima facie case is made out. We also find that the balance of convenience is in favour of the petitioners.
As a result, the High Court granted interim protection, thereby prohibiting tax authorities from initiating coercive action against the named officials until the next hearing, which is scheduled for June 10.
Legal Representation and Key Arguments
The petitioners are represented by Abhishek A Rastogi, founder of Rastogi Chambers, who challenged the legality of the penalties. According to Rastogi, Section 122(1A) of the CGST Act came into effect only on January 1, 2021, and hence cannot be applied to actions committed before this date.
Furthermore, the legal team pointed out serious procedural lapses, including discrepancies between the periods mentioned in the show-cause notices and the final penalty orders. The defense also claimed the penalties were grossly disproportionate when compared to the alleged tax evasion and the individual roles of the employees involved.
What’s Next?
The outcome of this case could have broader implications for how personal liability is interpreted under the CGST framework, especially for top executives in India. As the matter proceeds to its next hearing in June, all eyes will be on how the judiciary balances tax enforcement with individual protection under corporate law.
