Co-Noticees and the Section 122(1A) Personal Penalty

Noticees and the Section explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

A demand arrives against the company and, in the same notice, a personal penalty against a director or a manager. The provision behind it has two conditions, and both have to be established — not asserted.

Section 122(1A), inserted by the Finance Act, 2020: "Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on." Two conjunctive conditions — retaining the benefit and the transaction being conducted at that person's instance — and only four of the twenty-one clauses of s.122(1) are covered.

The four clauses it attaches to

Section 122(1A) does not attach to every offence in s.122(1). It reaches only:

• (i) supplying goods or services without issue of any invoice, or with an incorrect or false invoice;
• (ii) issuing any invoice or bill without supply of goods or services in violation of the Act or rules;
• (vii) taking or utilising input tax credit without actual receipt of goods or services, either fully or partially, in contravention of the Act or rules;
• (ix) taking or distributing input tax credit in contravention of s.20, or the rules made thereunder.

These are the fake-invoicing family. A penalty under s.122(1A) proposed on a classification dispute, a valuation difference, a credit reversal question or a late payment is outside the sub-section on its face — and that is the first point to take.

The two conditions, and what they require

"Retains the benefit of a transaction."

Not "was involved in", not "was aware of", not "held office at the time". Retains the benefit — a personal, economic benefit derived and kept.

A salaried director drawing the same remuneration before and after the transactions in question does not, without more, retain the benefit of them. Establishing this limb requires the department to show something in the nature of a flow of value to the individual — funds, assets, an ownership interest, a share of the proceeds.

"At whose instance such transaction is conducted."

Not "who ought to have prevented it". At whose instance — the person on whose direction or initiative the transaction happened.

That is a causal and directional requirement, and it is what distinguishes the person who ran the scheme from those who processed the paperwork.

Both must be present. The word is "and". A person who directed a transaction but derived no benefit, or who benefited but did not direct it, is outside the sub-section.

Where section 122(1A) sits among the personal-liability provisions

Section 137 is the closest analogue and it carries an express defence: a person is not liable if he proves the offence was committed without his knowledge or that he exercised all due diligence to prevent it. Section 122(1A) has no express defence, which is precisely why its two conditions have to be answered head-on.

Answering a section 122(1A) proposal

1. Check the clause. Does the notice invoke a clause (i), (ii), (vii) or (ix) offence against the main person? If not, the sub-section is not attracted.

2. Take the two conditions separately. Answer "retains the benefit" and "at whose instance" in separate paragraphs, because the department's notice usually merges them into a general assertion of responsibility.

3. Meet "retains the benefit" with evidence. Remuneration unchanged, no shareholding, no related-party flow, no asset acquisition in the period, bank statements if necessary. A negative is proved by producing the record.

4. Meet "at whose instance" with the decision trail. Who approved the transactions, on what authority, under which delegation. A person whose approval was not sought did not instance it.

5. Take s.75(13). Where a penalty is imposed under s.73, s.74 or s.74A, no penalty for the same act or omission shall be imposed under any other provision of the Act. A s.122 penalty proposed alongside a s.74A penalty for the same act runs into this bar.

6. Take the deemed conclusion. Explanation 1(ii) to s.74A: where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and the proceedings against the main person have been concluded, the proceedings against all the persons liable to penalty under s.122 and s.125 are deemed to be concluded. Section 74A penalty windows →

That last point is the most valuable, and it is often the whole answer.

The strategic consequence for a group

Explanation 1(ii) means that a company's decision to conclude the demand — by paying within a s.74A window — automatically concludes the personal penalty proceedings against the individuals named in the same notice.

Three practical implications:

The company's decision is not only the company's. Directors and employees named as co-noticees have a direct interest in whether and when the company pays, and should be told.

The intimation should say so. When paying under s.74A(8) or (9), the written intimation should identify the co-noticees and record that the proceedings against them stand concluded under Explanation 1(ii).

Check the portal afterwards. Co-noticee proceedings sometimes remain open on the system after the main demand is concluded, and an open proceeding produces its own order if nobody points out the position.

Key takeaways

• Section 122(1A) applies only to clause (i), (ii), (vii) or (ix) offences — the fake-invoicing family.
• It requires both that the person retains the benefit and that the transaction was at his instance.
• The penalty is equal to the tax evaded or the credit availed or passed on.
• Answer the two conditions separately and evidentially — remuneration, shareholding, approvals, delegation.
• Section 75(13) bars a penalty under another provision for the same act or omission.
• Explanation 1(ii) to s.74A: concluding the demand against the main person deems the s.122 and s.125 proceedings against co-noticees concluded.

Read next

• Section 74A Penalties: Four Windows and What Each Costs
• Answering a DRC-01: Building the Reply
• Section 75(7): No Demand Beyond the Notice
• Sections 122-138 CGST — Penalties, Prosecution and Arrest

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition).