Facts of the Case

M/S Shivam Guest House, through its proprietor Shailendra Mishra, challenged an order dated 20.09.2022 passed by the Deputy Commissioner State Tax, Sector-2, Lucknow, imposing a penalty of Rs.2,11,23,925.80 under Section 122(i)/(ii) read with Section 127 of the GST Act. The case arose from a syndicate committing fraud by using various persons' names and issuing invoices in their names to enable third parties to fraudulently claim Input Tax Credit. The petitioner stated he was never aware of the GST registration under which such invoices were created and learnt of the impugned order only when his savings bank account was frozen as part of the recovery.

Issues Involved

  1. Whether a penalty order under Section 122/127 can stand against a person who claims to have had no knowledge of the registration or invoices at the centre of the fraud, and who was never heard before the penalty was imposed.
  2. Whether the consequent bank-account freeze should be lifted pending a fresh hearing.

Petitioner's Arguments

  • Was never aware of the registration on which fraudulent invoices had been created in his name, and only learnt of the impugned order when his savings account was attached.
  • Sought quashing of the penalty order, unfreezing of his account, and a stop to recovery proceedings.

Respondent's Arguments

  • The GST Department fairly conceded that there appeared to be a syndicate of fraudsters at work and that the petitioner may have had no hand in the alleged illegal activities, and agreed the petitioner should be allowed to present his case before the authorities.

Court Order / Findings

  • In light of the department's own concession, the Court quashed and set aside the impugned order dated September 20, 2022, with a direction to the authorities to grant the petitioner an opportunity of hearing and thereafter pass a reasoned order in accordance with law.
  • The authorities were further directed to unfreeze the petitioner's savings bank account within one week. The writ petition was disposed of on these terms.

Important Clarification

  • Where the department itself concedes that a named "supplier" or "recipient" in a fraudulent ITC/invoice syndicate may in fact be an innocent identity-theft victim, courts will quash the penalty order for want of a hearing.
  • Courts will direct immediate release of frozen bank accounts pending fresh adjudication, rather than leaving the victim to bear the burden of recovery proceedings while contesting the fraud allegation.

Sections Involved

  • Section 122, CGST Act, 2017 — penalty for specified offences, including issuance of invoices without actual supply of goods/services and fraudulent availment or passing of ITC.
  • Section 127, CGST Act, 2017 — power to impose penalty in certain cases where no separate penalty proceeding is otherwise provided.
  • Section 79, CGST Act, 2017 — modes of recovery, invoked here to freeze the petitioner's bank account.

Decision – In Favour of

The decision is in favour of the assessee. The penalty order was quashed, the bank account ordered unfrozen, and the matter remanded for a fresh hearing.

Case Details

Court: High Court of Judicature at Allahabad, Lucknow Bench
Case No.: Writ Tax No. 1109 of 2025
Coram: Hon'ble Justice Shekhar B. Saraf and Hon'ble Justice Prashant Kumar
Date of Order: October 16, 2025

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