Court holds CBIC circular binding on Revenue; show-cause notice proposing penalty under Section 122 of CGST Act declared void ab initio and grants interim relief to petitioner.
In a significant decision delivered on November 4, 2026, the Gauhati High Court, presided over by Justice Soumitra Saikia, granted interim relief to M/s G.M. Coke Industries by restraining the Revenue Authorities from initiating penalty proceedings under Section 122 of the Central Goods and Services Tax (CGST) Act, 2017. The case arose out of a show-cause notice dated September 30, 2026, issued by the Joint Director, Directorate General of GST Intelligence, alleging that the petitioner firm had availed Input Tax Credit (ITC) without receiving the corresponding goods or services.
The petitioner, a partnership firm engaged in the manufacture of coke under HSN 2704, challenged the show-cause notice which sought recovery of ITC amounting to over Rs. 16 crore along with penalties under Section 122(1)(VIII) and 122(2)(b) of the CGST Act and corresponding provisions of the Assam GST Act, 2017. The crux of the petitioner's argument, advanced by senior counsel Dr. Ashok Saraf, was that the proposed penalty was in direct conflict with Circular No. 171/03/2022 GST issued by the Central Board of Indirect Taxes and Customs (CBIC).
The CBIC circular clarified that although recovery and interest proceedings under Section 74 of the CGST Act could be initiated for ITC availed without receipt of goods or services, penalty under Section 122 should not be imposed in such cases. Dr. Saraf emphasized that the circulars issued by the CBIC, while not binding on courts or taxpayers, are binding on Revenue authorities themselves, relying on the Supreme Court's judgment in Commissioner of Customs v. Indian Oil Corporation (ITR 267).
Upon hearing the parties, the Gauhati High Court observed that the show-cause notice was contrary to the binding CBIC circular and hence void ab initio to the extent of penalty under Section 122. The Court noted the Apex Court's precedent that circulars issued by the CBIC cannot be disregarded by Revenue authorities and any action contrary thereto is impermissible. Accordingly, the Court restrained the Revenue from taking any further action under the impugned show-cause notice till the next hearing scheduled for December 9, 2026.
The respondents, represented by senior counsels including the Deputy Solicitor General of India, were permitted to complete their instructions and respond to the show-cause notice, but no coercive action was allowed in the interim. The Court's decision reinforces the principle that administrative clarifications issued by the highest tax authority have binding effect on Revenue officials and provides much-needed relief to taxpayers against erroneous penalty demands.
This judgment is a landmark in administrative law and GST jurisprudence, reaffirming that the Revenue's actions must align with CBIC guidelines and underscoring the judiciary's role in upholding legal consistency in tax administration.
Bottom Line:
A show-cause notice issued by the Revenue Authorities proposing penalties contrary to the clarifications issued by the Central Board of Indirect Taxes and Customs (CBIC) is in conflict with the binding nature of such circulars on the Revenue and requires judicial interference.
Statutory provision(s):
Central Goods and Services Tax Act, 2017 Sections 74, 122; Assam Goods and Services Tax Act, 2017; Integrated Goods and Services Tax Act, 2017
M/s G.M. Coke Industries v. Union of India, (Gauhati) : Law Finder Doc Id # 3017456
