The Gauhati High Court on 4 November observed that GST authorities cannot impose penalties under Section 122 of the Central Goods and Services Tax (CGST) Act, 2017, for availing Input Tax Credit (ITC) without actual receipt of goods or services when such action is prohibited by a binding CBIC circular.
Justice Soumitra Saikia issued notice on a writ petition filed by G.M. Coke Industries, a partnership firm engaged in manufacturing coke in Assam, and restrained the authorities from taking further action on a show-cause notice proposing recovery of Rs. 16.21 crore in allegedly ineligible ITC from it. The Bench said:
“...the show cause notice reflects that the Department proposes to impose penalty under section 122 which is in clear conflict of the circular number 171/03/2022 GST issued by the Principal Commissioner of GST.”
G.M. Coke Industries challenged a demand-cum-show-cause notice dated 30 September 2026, issued by the Directorate General of GST Intelligence (DGGI), Guwahati Zonal Unit.
The notice alleged that the firm had availed ITC on the basis of invoices and corresponding e-way bills issued by 17 suppliers without actually receiving the goods. The Department proposed recovery of ITC amounting to Rs. 16,21,12,454, along with penalties under Sections 122(1)(viii) and 122(2)(b) of the CGST Act and corresponding provisions of the Assam GST and Integrated Goods and Services Tax (IGST) Acts.
Appearing for the petitioner, Senior Advocate Dr. Ashok Saraf relied on CBIC Circular No. 171/03/2022-GST dated 6 July 2022. He submitted that although the Department could initiate recovery proceedings under Section 74, along with interest under Section 50, where ITC was availed or utilised without actual receipt of goods or services.
However, he contended that it could not impose a penalty for the same act under Section 122 of the CGST Act. Moreover, he argued that CBIC circulars bind the Revenue authorities and relied on the Supreme Court's decision in Commissioner of Customs v. Indian Oil Corporation.
The Revenue authorities submitted that the notice was only at the show-cause stage and that the petitioner could file its response before the Department took any decision on recovery.
The Court noted that Circular No. 171/03/2022-GST clarifies that where a registered person avails or utilises ITC without receiving goods or services, the Department can initiate recovery under Section 74, along with interest under Section 50. However, it cannot impose a penalty for the same act under any provision of the CGST Act, including Section 122.
It noted that the impugned notice proposed penalties equivalent to the ITC amount under Sections 122(1)(viii) and 122(2)(b), in addition to recovery of the ITC.
Further, the Bench referred to the Supreme Court's ruling in Commissioner of Customs, which held that circulars issued by the Board bind the Revenue authorities and that a show-cause notice or demand contrary to an existing Board circular is void ab initio. It said:
“The circulars issued by the Central Board of Indirect Taxes although not binding on the Court or on the assessee, however, they are binding on the revenue and the revenue cannot take any step or any action expressly prohibited under the circular”
Accordingly, the High Court issued notice to the respondents, returnable in four weeks, and restrained them from taking further action under the impugned show-cause notice until the next hearing.
For Petitioner: Senior Advocate Dr. Ashok Saraf, assisted by Advocates A. Kaushik, N.N. Dutta, P. Baruah and P.K. Bora
For Respondents: Senior Advocate S.C. Keyal, assisted by Advocate K. Jain for DGGI; Advocates R. Devi, S. Chetia and H. Boruah