Introduction:
Recently, the Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No. 254/11/2025-GST dated 27/10/2025 appointing the proper officers under Section 122, 74A, 75(2) of CGST Act, 2017 and Rule 142(1A) of CGST Rules, 2017. The circular has expressly stated that no proper officer has been assigned in respect of the above referred Sections and Rules prior to issuance of this circular. However, many of the taxpayers have received notices under Section 122 proposing to impose the penalties prior to issuance of this Circular (especially in case of fake invoicing cases). Now, many of the taxpayers are questioning the validity of thousands of penalty notices and orders issued prior to 27/10/2025. In this article, we made an attempt to discuss the same as follows.
It is important to note that Section 5 of CGST Act, 2017 empowers the board to prescribe the powers of the proper officer. Accordingly, the CBIC vide Circular No. 1/1/2017-GST dated 26/06/2017, Circular No. 3/3/2017-GST dated 05/07/2017 and Circular No. 31/05/2018-GST dated 09/02/2018 had appointed the proper officer for various Sections and rules under GST. No specific appointment has been made under Section 122. However, the officers had quoted Section 122 while issuing the notices under Section 73 ad 74 for imposing the penalties till 2022. Subsequently, the CBIC had issued the Circular No. 171/03/2022-GST dated July 6, 2022 and clarified that the officer can impose only penalty under Section 122 as there is no underlying supply.
Later, the officers proceeded to independently issue notices under Section 122 without invoking Section 73/74 of CGST Act, 2017 and confirmed the demand under Section 122. Considering the admission of Circular No. 254/11/2025-GST dated 27/10/2025 that there is no proper officer under Section 122, a critical question arises whether this Circular retrospectively validate proceedings initiated from July 2017 onwards? The answer is an unequivocal NO, based on settled judicial principles.
Various courts have consistently held that circulars cannot have retrospective effect to cure jurisdictional defects. In case of Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire Industries (2008) 10 TMI 5 (SC), the Constitution Bench categorically held that while circulars are binding on revenue authorities, they cannot override judicial pronouncements or cure jurisdictional defects retrospectively. While a circular that grants a benefit can be retrospective, a circular that imposes a burden, creates a liability, or "creates" jurisdiction where none existed is considered prejudicial/oppressive. The same was held in case of Suchitra Components Ltd. Vs Commissioner Of Central Excise, Guntur, 2007 (1) TMI 4 - Supreme Court and reinforced by the Constitution Bench in Commissioner of Income Tax (Central) -I, New Delhi Vs Vatika Township Private Limited, 2014 (9) TMI 576 - SC - Income Tax.
The present Circular by introducing jurisdictional authority for the first time, cannot "reach back" to validate past notices. Hence, retrospective validation impossible due to settled judicial principles against retrospective curing of jurisdictional defects.
Recently, the Andhra Pradesh High Court in case of Ganapathi Ispat Vs UOI in WP No.31263/2025 set aside the notices issued under Section 122 prior to Circular No. 254/11/2025-GST dated 27/10/2025 holding that it may not be permissible to hold that all the officers notified under Notification No. 02/2017-CT dated 28-06-2017 does not confer with the powers under Section 122. However, the High Court had granted the liberty to issue fresh notice under Section 122.
In this context, it is also important to keep in mind that if the notices are held to be invalid, the officers can re-issue the notices within the time limits prescribed under Section 73/74, however, a doubt may arise whether there are any time limits for Section 122 for issuing the notices. On strict reading of Section 122, there is no specific time limit for issuing notice under Section 122. However, there is another school of thought that Section 127 of CGST Act, 2017 empowers the officers to impose penalty after giving a reasonable opportunity of being heard if the same is not covered under Section 62, 63, 64, 73, 74, 129 and 130 without any time limit. We shall wait for the developments in this regard.
In case of Canon India Private Limited v. Commissioner of Customs (2021) 376 E.L.T. 3 (SC), the Supreme Court held that proceedings initiated by an officer without valid designation are void ab initio and cannot be validated retrospectively. The Court emphasized that the requirement of a proper officer is jurisdictional and goes to the root of the matter. In case of Vigneshwara Transport Company v. Additional Commissioner of Central Tax (2025) 94 G.S.T.L. 273 (Kar), the Karnataka High Court, directly applying the Canon India principle to GST, held that an investigation and subsequent show cause notice under Section 74 conducted by a non-proper officer renders the entire proceeding void ab initio. In case of M/s Tata Projects Limited & M/s Hindustan Construction Company Ltd. (W.P.(C) 16888/2025 & 17856/2025), it was revealed that in Delhi, no Additional Commissioner exists to handle demands exceeding Rs. 2 crores as mandated by Circular No. 31/05/2018. This exposes that the problem is not just delayed designation but complete non-existence of adequately ranked officers, making retrospective validation impossible.
The judiciary has consistently held that these flaws are not mere "procedural irregularities." The Karnataka High Court, in both Mohan C. Suvarna vs. Pr. Commissioner of Customs, 2022 (380) E.L.T. 162 (Kar) and Vigneshwara Transport Company vs. Additional Commissioner of Central Tax, 2025 (94) G.S.T.L. 273 (Kar.) underscored that a lack of proper officer designation "goes to the root" of the matter. By ruling that proceedings initiated by unauthorized officers are void from the start, the courts have opened the door for taxpayers to seek relief through writ jurisdiction, even when alternative appellate remedies exist.
However, the path for taxpayers is not without obstacles. In Maa Geeta Traders v. Commissioner, Commercial Tax (2021) 133 taxmann.com 81 (Allahabad), the High Court provided a "shield" for State Tax authorities, holding that under Section 5(3) of the Act, a State Commissioner can delegate powers through simple administrative orders without the need for Gazette notifications. Furthermore, the Yasho Industries Ltd. v. Union of India - 2021 (54) G.S.T.L. 19 (Guj.); (2021) 127 taxmann.com 781 upheld the authority of DGGI officers, noting that their appointment as Central Tax Officers via specific notifications grants them sufficient standing as "proper officers" for investigations and summons.
The revenue often cites Section 160 to cure the absence of a "Proper Officer". However, the Allahabad High Court in case of M/s Mansoori Enterprises Vs UOI 2024 (2) TMI 1183 held that this section cannot validate a "jurisdictional nullity." Using an officer with no assigned function for Section 122 is a total lack of authority, not a curable irregularity. The saving provision under Section 160(2) applies only to irregularities in appointment, not to complete absence of designation, which is a jurisdictional nullity.
Another emerging argument challenges the common practice of combining Section 74 (tax demand and recovery) with Section 122 (penalty for offences) in a single show cause notice and order. These provisions serve different purposes, fall under different chapters, and may require different proper officers. Section 74 falls under Chapter XV (Assessment and Audit) and deals with determination of tax not paid or short paid or erroneously refunded - it is essentially a civil recovery mechanism for tax dues. Section 122 falls under Chapter XIX (Offences and Penalties) and imposes penalties for specific contraventions - it is quasi-criminal in nature. The clubbing of these distinct proceedings into one omnibus order creates jurisdictional confusion and denies taxpayers the opportunity to mount separate defenses for civil liability versus criminal penalty.
The Allahabad High Court in Patanjali Ayurved Ltd. v. Union of India, (2025) 31 Centax 18 (All.) held that the penalty proceedings under Section 122 are distinct and independent of tax determination under Section 74. Consequently, the officer must be specifically designated as a "proper officer" for Section 122. Notably, as admitted in CBIC Circular No. 254/11/2025-GST, there was an absence of such designation for the period from July 2017 to October 2025. Therefore, any penalty order passed during this period is void ab initio for lack of jurisdiction.
The following provisions under Chapter XIX (Offences and Penalties) may still lack clear proper officer designation:
- Section 122A (Penalty for failure to register certain machines used in manufacture of goods as per special procedure)
- Section 122B (Penalty for failure to comply with track and trace mechanism)
- Section 123 (penalty for failure to furnish information return)
- Section 124 (fine for failure to furnish statistics)
This reveals a pattern of systemic non-compliance with the fundamental requirement of designating proper officers for penal provisions.
Conclusion:
The constitutional principle is clear: penal powers must be exercised only by officers with explicit statutory authority. Anything less undermines the rule of law that underpins our entire taxation system. While this creates opportunities for taxpayers to challenge penalty proceedings, it also underscores systemic gaps in GST implementation. Businesses and professionals should approach this issue strategically, raising jurisdictional defences where applicable while maintaining good faith engagement with tax authorities. The goal should be not merely technical victories but the establishment of clear, constitutional procedures that protect both revenue interests and taxpayer rights.
Special acknowledgments to Nayakuni Shailaja for helping the authors in bringing out this article.
Feedback can be shared with [email protected]/[email protected]