📌 Quick Answer
Under Section 122(1A) of the CGST Act, GST officers can impose personal monetary penalty on directors, managing directors, partners, and officers who were in charge of and responsible for the business at the time of contravention. The penalty can be up to the tax evaded or ₹25,000, whichever is higher. Separately, Section 137 provides for criminal prosecution of company officers for offences committed with their consent or attributable to their negligence. At Virtual Auditor, we defend individuals against personal GST penalties by establishing that the statutory conditions for personal liability are not satisfied — in particular, that the individual was not “in charge of” the business or had no knowledge of the contravention.
📖 Definition — Section 122(1A) CGST Act: Where any taxable person who is a company commits a contravention under Section 122(1), every person who at the time of contravention was in charge of and was responsible to the company for the conduct of its business shall be liable to penalty. This extends to directors, managing directors, partners of firms, and officers of LLPs. The provision mirrors the vicarious liability framework of Section 141 of the Negotiable Instruments Act and Section 278B of the Income Tax Act.
📖 Definition — Section 137 CGST Act: Where an offence under the CGST Act is committed by a company, every person who at the time of the offence was in charge of the company shall be deemed guilty of the offence and shall be liable to prosecution. If the offence is committed with the consent or connivance of, or is attributable to negligence of, any director, manager, secretary, or officer, that person shall also be deemed guilty. Prosecution under Section 137 is criminal in nature and can result in imprisonment.
Section 122(1) lists 21 categories of offences that attract penalties on the taxable person (the company or firm). With the insertion of sub-section (1A) effective 01 January 2022, the penalty net extends to individuals associated with the entity. The statutory framework operates at two levels.
The company or firm is the primary penalty target. The penalty quantum depends on the nature of the offence:
| Offence Category | Section | Penalty |
|---|---|---|
| Supply without invoice or with false invoice | 122(1)(i) & (ii) | Tax evaded or ₹10,000, whichever is higher |
| Collects tax but does not deposit with Government | 122(1)(iii) | Tax evaded or ₹10,000, whichever is higher |
| Avails ITC without actual receipt of goods/services | 122(1)(iv) | Tax evaded or ₹10,000, whichever is higher |
| Obtains refund by fraud | 122(1)(viii) | Tax evaded or ₹10,000, whichever is higher |
| Issues invoice or document using another person’s GSTIN | 122(1)(xii) | ₹25,000 |
| Fails to furnish information or furnishes false information | 122(1)(xv) | ₹25,000 |
| Obstructs or prevents officer from discharging duties | 122(1)(xvi) | ₹25,000 |
Section 122(1A) applies when the taxable person is a company. Section 122(1B) applies when the taxable person is a partnership firm or LLP. The structure follows the well-established vicarious liability model:
Section 137 escalates the consequences beyond monetary penalty to criminal prosecution. The structure mirrors Section 122(1A) but the consequence is imprisonment and fine, not just monetary penalty.
Section 137 is triggered when the company commits an offence under the CGST Act. The offences punishable with imprisonment are listed in Section 132(1):
The punishment depends on the quantum of tax evaded:
| Tax Evaded | Imprisonment | Nature |
|---|---|---|
| Exceeding ₹5 Crore | Up to 5 years + fine | Cognisable and non-bailable |
| ₹2 Crore to ₹5 Crore | Up to 3 years + fine | Non-cognisable and bailable |
| ₹1 Crore to ₹2 Crore | Up to 1 year + fine | Non-cognisable and bailable |
Section 137 of the CGST Act must be read with the director’s duties framework under the Companies Act, 2013. Section 166 of the Companies Act prescribes duties of directors including the duty to act in good faith and exercise due diligence. A director who has fulfilled these duties and had no involvement in the GST contravention has a strong defence against Section 137 prosecution.
Additionally, Section 149(12) of the Companies Act provides that an independent director or a non-executive director (not being a promoter or key managerial personnel) shall be held liable only in respect of acts of omission or commission which had occurred with their knowledge, attributable through board processes, and with their consent or connivance or where they had not acted diligently.
The statutory condition requires that the person was “in charge of and was responsible to the company for the conduct of its business.” This is a factual determination. Evidence that negates this condition:
For extended liability (where the offence is attributable to negligence or committed with consent/connivance), the defence is that the person had no knowledge of the contravention. Evidence includes:
The adjudication order imposing personal penalty must comply with principles of natural justice:
💡 Practitioner Insight — CA V. Viswanathan (IBBI/RV/03/2019/12333)
In our experience, a significant number of personal penalty orders fail at the appellate stage because the adjudicating officer does not establish the nexus between the individual and the contravention. The order simply recites the statutory language — “being a director, was in charge of the business” — without any factual finding on the person’s actual role, designation, signing authority, or involvement in the offending transaction. When we file the Section 107 appeal, we produce the company’s board resolution, the authorised signatory list from the GST portal, the organisation chart, and the delegation matrix. In most cases, this evidence is sufficient to discharge the personal liability of non-executive and non-operational directors. For the designated compliance officer, the defence shifts to demonstrating absence of mens rea — the offence was not committed with their knowledge or consent but was a systemic error or a subordinate’s omission.
Section 138 permits compounding of offences under Section 132, subject to conditions. Compounding means the offender pays a compounding fee and the prosecution is dropped. Key parameters:
📋 Summary
Personal penalty on directors and partners under Section 122(1A)/(1B) is a relatively new provision (effective 01-01-2022) that significantly expands individual exposure in GST matters. The penalty is personal — not recoverable from the company — and can reach up to the entire tax evaded. Section 137 adds criminal prosecution risk with potential imprisonment. The defence hinges on establishing that the individual was not “in charge of” the business or had no knowledge/consent of the contravention. Preventive documentation — board resolutions, delegation matrices, and compliance records — is the most effective protection. At Virtual Auditor, we represent individuals facing personal GST penalties across adjudication, appellate, and tribunal stages.
Yes. Section 122(1A) of the CGST Act (effective 01-01-2022) empowers officers to impose personal penalty on every person who was in charge of and responsible for the conduct of the company’s business at the time of contravention. The penalty extends up to the tax evaded or ₹25,000, whichever is higher. This is a personal liability — the company cannot pay it on the director’s behalf without tax implications.
Section 122 deals with monetary penalties imposed through adjudication proceedings — it is a civil proceeding. Section 137 deals with criminal prosecution of company officers — the consequence is imprisonment and fine. Both can run simultaneously for the same contravention. A Section 122 penalty order does not require proof beyond reasonable doubt; Section 137 prosecution does.
The penalty applies to persons “in charge of and responsible for” the business. A director with no operational role, no signing authority on GST returns, and no involvement in the specific transaction can argue that they were not in charge of the business. This defence is well-established under analogous provisions (Section 141 of the NI Act, Section 278B of the IT Act). However, the burden of proving this defence lies on the director.
Section 132(1) lists offences punishable with imprisonment — these include supply without invoice, invoice without supply, fraudulent ITC availment, collecting tax but not depositing it, fraudulent refund, and destruction of evidence. These offences, when committed by a company, can lead to prosecution of directors under Section 137. Prosecution requires prior sanction of the Commissioner under Section 132(6).
The individual can file a first appeal under Section 107 before the Appellate Authority within 3 months (extendable by 1 month). Pre-deposit of 10% of the disputed penalty is required. Further appeal lies to the GST Appellate Tribunal under Section 112 (pre-deposit: 20% of the remaining penalty after Section 107). A writ petition under Article 226 is available if the order is without jurisdiction or violates natural justice principles. Contact us for a case assessment: Book a Consultation.
Yes. Prosecution under Section 132 requires that the tax evaded exceeds ₹2 Crore (after the amendment effective 01-10-2023, threshold increased from ₹1 Crore to ₹2 Crore). For offences involving tax evasion exceeding ₹5 Crore, the offence is cognisable and non-bailable with imprisonment up to 5 years. Below ₹2 Crore, only monetary penalty under Section 122 applies — no prosecution.
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