The Rajasthan High Court has stayed proceedings initiated under Section 122(1A) of the CGST Act, 2017, after a challenge to a show cause notice proposing a penalty of approximately ₹56.60 crore. The Court’s interim order came after the petitioner contended that the notice had been issued without first determining the underlying tax or input tax credit liability through the statutory mechanism under Sections 73 or 74 of the GST Act.
The Division Bench issued notice to the respondents and, in the meantime, directed that the proceedings initiated under Section 122(1A) shall remain stayed. The order is interim in nature and does not finally decide the validity of the show cause notice or the substantive questions raised in the writ petition.
Background of the GST Dispute
The petitioner is engaged in the business of purchase and sale of second-hand vehicles. According to the writ petition, the dispute arose from an arrangement involving Droom Technology Pvt. Ltd. and various independent businesses which operated as vendors on its online platform.
The petition states that the petitioner was approached in 2018 in connection with services relating to uploading vehicle data on the Droom portal. His case is that his role was limited to facilitating the connection between Droom Technology and independent business entities. The 44 transacting firms allegedly registered themselves as vendors, uploaded vehicle and customer-related information on the portal and provided data-related and facilitation services for which invoices were raised and GST was charged.
₹56.60 Crore Penalty Notice Under Section 122(1A)
Following an investigation, a show cause notice dated 20 April 2026 was issued under Section 122(1A) of the GST Act, proposing a penalty of ₹ 56,60,05,977 for the period covering Financial Years 2018–19 to 2024–25. The petitioner disputes the department’s allegation that he was the ‘mastermind’ behind the transactions of the 44 entities.
The writ petition states that the petitioner had earlier been arrested in March 2025 in connection with allegations relating to wrongful availment and passing on of input tax credit and was subsequently granted bail. It further states that proceedings initiated against certain transacting firms were dropped, while the department subsequently proceeded against the petitioner through the impugned Section 122(1A) notice.
Challenge to Invocation of Section 122(1A)
A central issue raised in the writ petition is whether a penalty under Section 122(1A) can be proposed without a prior determination of the underlying tax or input tax credit liability. The petitioner argues that Section 122(1A) is a penalty provision and does not independently create a complete machinery for assessment, quantification, recovery or adjudication of the underlying tax or ITC liability.
The petitioner’s case is that where the proposed penalty is calculated by reference to tax evaded or ITC allegedly availed or passed on, a legally valid determination of that underlying liability must precede the invocation of Section 122(1A). The petitioner therefore contends that the impugned notice is premature and jurisdictionally defective in the absence of such determination.
Dispute Over the Petitioner’s Alleged Role
The petitioner also challenges the department’s characterization of him as the person responsible for the alleged transactions. It is contended that the transactions were undertaken by separate GST-registered entities and that the petitioner merely acted as an intermediary or facilitator.
The petition further argues that Section 122(1A) contemplates liability of a person who retains the benefit of a specified transaction and at whose instance such transaction is conducted. According to the petitioner, the notice impermissibly seeks to treat him simultaneously as the principal actor, beneficiary and alleged third-party participant, without establishing the statutory prerequisites for invoking the provision.
Challenge to Consolidated GST Liability
Another challenge concerns the manner in which the proposed penalty has been quantified. The writ petition states that the alleged ITC availed and ITC passed on across 44 GSTINs have been clubbed together to arrive at a consolidated penalty against the petitioner.
The petitioner contends that each GSTIN represents a separate taxable person and that any liability must be determined person-wise, GSTIN-wise, period-wise and transaction-wise. The petition therefore challenges what it describes as a mechanical aggregation of the alleged liabilities of independent entities without a separate determination of their respective roles and liabilities.
Limitation and Other Legal Challenges
The writ petition also raises a limitation objection. It points out that the notice covers the period beginning in 2018–19, whereas Section 122(1A) came into effect from 1 January 2021. The petitioner consequently argues that the provision cannot be applied retrospectively to periods preceding its introduction.
The petition additionally raises issues concerning natural justice and the supply of relied-upon material. It alleges that the show cause notice relies upon investigation material including statements, audit material, forensic reports, bank statements, GST data and electronic communications, while the relevant relied-upon documents were not supplied to the petitioner. A challenge has also been raised regarding the absence of an opportunity for cross-examination of persons whose statements are relied upon.
High Court Grants Interim Protection
At the hearing, counsel for the petitioner submitted that the proceedings under Sections 73 or 74 of the CGST Act had not been followed and that the notice under Sections 122 and 122(1A) had been issued without assessing any liability.
The High Court issued notice to the respondents. Pending further proceedings, the Court directed that the proceedings initiated under Section 122(1A) shall remain stayed and directed the matter to be listed after six weeks.
Case Details
Case: D.B. Civil Writ Petition No. 9370/2026
Subject: Challenge to show cause notice under Section 122(1A) of the CGST Act, 2017 Counsel for Petitioner: Sr. Adv. R.B. Mathur with Adv. Falak Mathur
Interim Relief: Proceedings initiated under Section 122(1A) stayed
