Bombay High Court Grants Interim Relief To Shemaroo Executives From Rs 400-Crore GST Demand

The Bombay High Court has given temporary relief to three top executives of Shemaroo Entertainment Ltd. from a Rs 400-crore GST demand, and has asked the authorities to not take any coercive measure to enforce it.

The interim relief was granted after the court had some doubts about the penalty that was imposed.

"In these circumstances, 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," the court observed in its order.

The case was heard by the division bench comprising Justices B.P. Colabawalla and Firdosh P. Pooniwalla.

The tax authorities had issued the penalty orders against the three officials of Shemaroo, stating that they were personally liable for the tax irregularities in the company. However, arguing against the personal liability orders, they approached the high court saying that the provision to impose such fines came in the year 2021 but the period covered by the tax authorities start from July 2017.

Representing the three executives from the company, advocate Abhishek Rastogi argued before the court that invoking the ire of penal provision retrospectively is constitutionally not permitted, and hence, the period of penalty cannot be accounted for since the year 2017.

Another major point raised by Rastogi was that such a penal provision can be invoked by the tax authorities only when individuals personally benefit from, or direct the company to undertake fraudulent transactions.

It was further submitted on behalf of the three petitioners that the period covered under the penalty extends up to July 2023. However, the show cause notice was directed from the period of July 2017 to March 2022 only.

In light of these observations, the court directed the tax department not to act on the penalty orders or take any coercive steps against the executives until further notice. The matter will next be heard on June 10, 2025.

The court said that the retrospective application of the penal norm used by the authorities raised a serious constitutional issue and also noted that the case appeared similar to an earlier decision in Shantanu Sanjay Hundekari versus Union of India, where the court had taken a similar view.