How Maersk's Employees Were Served With A Rs 3,700 Crore GST Bill

What happens when average salaried employees face an astronomical tax demand?

<div class="paragraphs"><p>(Source: Towfiqu Barbhuiya/Unsplash)</p></div>
(Source: Towfiqu Barbhuiya/Unsplash)

In a dispute involving a tax demand running into thousands of crores, an average salaried employee of a shipping company found himself in a bind when a whopping Rs 3,731 crore tax penalty was imposed upon him.

The facts of the case are intriguing.

M/s Maersk, a Danish shipping and logistics company, was under the tax department’s scanner for wrongfully availing of tax credits and issuing incorrect invoices.

However, since the company wasn't coming forward to clear its dues, the department deemed it reasonable to fasten the penalty on Maersk’s senior tax operations manager and some of its other employees, alleging that the company wouldn't have been able to evade its tax liabilities without their connivance.

In addition, the department maintained that the benefits of the tax evasion were retained by these employees.

Consequently, a show cause notice was issued to Sanjay Hunderkari, the tax manager, and some other employees of the company for a tax demand to the tune of Rs 3,731 crore.

Hunderkari and his fellow employees challenged the department’s decision before the Bombay High Court.

The high court was taken aback by the nature of the demand and the peculiarity of the case.

While setting aside the tax demand, the court said that it's highly unconscionable and disproportionate for the department to demand such an astronomical amount, which in fact is clearly alleged to be the liability of Maersk.

At the outset, the court made it clear that the demanded amount wouldn't pass the jurisdictional test itself, as such a penalty can only be imposed on a taxable person, which was the company in this case and not the tax manager and the employees.

It said there's no material on record to show that the department had any jurisdiction to issue such a notice or to adjudicate on any of the charges specified in the show cause notice.

The court said even if it's to be assumed for the sake of the argument that the show cause notice was rightly issued in law, there was still no material to show that there were any transactions that would make the employees liable for such a penalty.

In addition, the court said that it would not be incorrect to say that the purpose of issuing the show cause notice was to threaten and pressurise the employees.

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