Director Cannot Be Prosecuted Alone for GST Offence Committed by Company: Punjab & Haryana High Court Quashes Proceedings.

Introduction

The Punjab & Haryana High Court has held that where the alleged GST offence has been committed by a company, its Director cannot be prosecuted on the basis of vicarious liability without arraigning the company itself as an accused.The Court accordingly quashed the criminal complaint and consequential proceedings against the Director, while leaving the authorities at liberty to initiate proceedings under Section 132 of the CGST Act in accordance with law.

Background of the Case

The Directorate of Goods and Services Tax Intelligence (DGGI), Gurugram initiated criminal proceedings against Manoj Bansal, Director of M/s Nikita Industries Pvt. Ltd. (NIPL), under Section 132 of the CGST Act.

According to the Department, investigation revealed that NIPL had fraudulently availed Input Tax Credit of approximately Rs 15.44 crore on the basis of invoices issued by various allegedly bogus or dummy firms without actual supply of goods.

The Department alleged that the petitioner, being a Director of NIPL, was actively involved in the management and operations of the company and was the beneficiary and mastermind behind the alleged fraudulent transactions.

However, while the criminal complaint was instituted against the Director, NIPL itself was not arrayed as an accused.

The Director therefore approached the High Court seeking quashing of the complaint and all consequential proceedings.

Arguments of the Petitioner

The petitioner contended that the alleged wrongful ITC had been availed by NIPL and not by him in his individual capacity.

NIPL was the “registered person” for the purposes of the CGST Act, whereas the petitioner himself was not the registered person who had availed the disputed ITC.

It was argued that liability could be fastened upon the Director under Section 137 of the CGST Act only when proceedings were also initiated against the company.

The petitioner relied upon several Supreme Court judgments, particularly Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd., to contend that when an offence is attributed to a company, prosecution of persons responsible for the company on the basis of vicarious liability cannot ordinarily survive unless the company itself is arraigned as an accused.

Department's Arguments

The DGGI opposed the petition and contended that the case was not merely one of passive or technical vicarious liability.

According to the Department, the petitioner was actively involved in the management and operations of NIPL and had facilitated the alleged fraudulent transactions.

The Department alleged that he was the mastermind and beneficiary of the scheme involving bogus invoices and wrongful availment of ITC without actual receipt of goods.

Therefore, according to the Department, the Director could be individually prosecuted even though NIPL had not been made an accused.

Issue Before the High Court

Whether a Director of a company can be prosecuted individually under the CGST Act for an offence allegedly committed by the company, without impleading the company itself as an accused?

High Court's Analysis

The High Court examined Section 137 of the CGST Act, which deals with offences committed by companies.

Under Section 137, where an offence is committed by a company, persons who were in charge of and responsible to the company for the conduct of its business may also be deemed guilty and proceeded against.

The Court compared Section 137 of the CGST Act with Section 141 of the Negotiable Instruments Act, 1881, dealing with offences by companies.

The High Court observed that the two provisions are pari materia, as both provisions contemplate liability of the company as well as persons responsible for the affairs of the company.

Supreme Court's Ruling in Aneeta Hada Applied

The High Court placed substantial reliance upon the Supreme Court's landmark decision in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd.

In that case, the Supreme Court had held that commission of the offence by the company is an express condition precedent for attracting the vicarious liability of persons responsible for the company. Consequently, where prosecution is maintainable against the company, arraigning the company as an accused is imperative before vicarious liability can be imposed upon its officers.

The High Court also referred to other Supreme Court decisions including:

• Anil Gupta v. Star India (P) Ltd.

• Himanshu v. B. Shivamurthy

• Sharad Kumar Sanghi v. Sangita Rane

• Dayle De Souza v. Government of India

These decisions reinforced the principle that where liability of a Director or officer arises because of an offence committed by the company, prosecution of the company assumes fundamental importance.

Company Was the Registered Person That Availed ITC

Another important aspect considered by the High Court was the identity of the person who had actually availed the disputed ITC.

Under Section 16 of the CGST Act, entitlement to take Input Tax Credit is available to a registered person.

The Court noted that NIPL was the registered person within the meaning of Section 2(94) of the CGST Act and it was NIPL that had allegedly fraudulently availed the ITC.

The demand-cum-show cause notice under Section 74 had also been issued to NIPL, and the company itself had preferred an appeal under Section 107 of the CGST Act.

Therefore, the alleged offence forming the foundation of the criminal prosecution was attributable to the company.

Director's Prosecution Without Company Unsustainable

The High Court rejected the Department's argument that prosecution against the Director could independently continue because he was allegedly the main architect of the fraud.

The Court held that the argument lacked legal basis in view of the settled principles governing vicarious liability.

Since the alleged offence of wrongful availment of ITC had been committed by NIPL and the petitioner's alleged liability arose from his position and role as its Director, prosecution of the company was an essential prerequisite.

The Court consequently held that:

In the absence of NIPL being arraigned as an accused, the complaint against its Director was not maintainable. Unless the company is prosecuted, vicarious liability cannot be fastened upon the Director.

Final Decision

The Punjab & Haryana High Court allowed the petition and quashed Complaint No. COMA-86-2021 dated 05.02.2021 and all consequential proceedings against Manoj Bansal.

However, the Court clarified that the authorities would remain at liberty to proceed in respect of the offence under Section 132 of the CGST Act in accordance with law.

Thus, the judgment does not extinguish the Department's ability to initiate legally sustainable proceedings; rather, it holds that the prosecution in its existing form—against the Director without arraigning the company—could not continue.

GST Case Law Manoj Bansal C/O Nikita Industries Pvt. Ltd. Versus Deputy Director

Citation-2026 TAXONATION 1904 (PUNJAB AND HARYANA)

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