AP High Court Clarifies Limits of Jurisdiction Notifications in GST Penalty Proceedings Under Section 122

Introduction

In a significant ruling for GST enforcement, the Andhra Pradesh High Court has held that a government notification merely defining the territorial jurisdiction of tax officers does not automatically confer upon them the power to initiate penalty proceedings under Section 122 of the Central Goods and Services Tax (CGST) Act, 2017. The decision, delivered in Writ Petition No. 31263 of 2025 by a bench comprising Justice R. Raghunandan Rao and Justice T.C.D. Sekhar, sets aside a show cause notice (SCN) issued against Ganapati Ispat, a proprietary concern based in Krishna District, Andhra Pradesh. The petitioner, represented by its proprietor Kota Prudhvi Venkata Teja, challenged the SCN dated September 1, 2025, alleging it was issued without proper jurisdictional authority by the Assistant Commissioner of Central Tax. This judgment underscores the need for explicit empowerment in GST proceedings and leaves open the possibility for fresh action by authorities, potentially reshaping how penalty notices are issued across India.

The case highlights ongoing tensions in GST administration, where businesses face scrutiny for alleged circular trading and other irregularities, but procedural lapses can render enforcement actions vulnerable to judicial review. As the court emphasized procedural clarity, this ruling arrives at a time when GST compliance remains a critical concern for taxpayers, with implications for how the Central Board of Indirect Taxes and Customs (CBIC) delegates powers to field officers.

Case Background

Ganapati Ispat, a registered taxpayer with GST Identification Number (GSTIN) 37DWOPK3201C1ZT, operates from RS No. 142/1, Donka Road, Surampalle, Krishna District, Andhra Pradesh. The firm specializes in steel and metal-related activities, but the dispute arose from intelligence gathered by the Central Intelligence Unit of the Chief Commissioner of Central Tax (CCO), Visakhapatnam. This information allegedly pointed to instances of circular trading— a practice where goods are traded in a circular manner among entities to inflate turnover or claim undue input tax credit (ITC)—and other GST violations that could attract penalties under Section 122 of the CGST Act.

On September 1, 2025, the third respondent, the Assistant Commissioner of Central Tax at the Amaravati CGST Division in Guntur, issued an SCN bearing DIN 20250955YK000000C201. The notice invoked Sections 122(ii) and (vii) of the CGST Act, read with Circular No. 171/03/2022-GST, proposing penalties for the petitioner's alleged involvement in such activities. The SCN demanded that the petitioner explain why penalties should not be levied, citing no fraudulent ITC claims or refund issues but focusing on related-party transactions.

Aggrieved by this, Ganapati Ispat filed a writ petition under Article 226 of the Constitution of India before the Andhra Pradesh High Court at Amaravati on December 17, 2025. The petition sought a declaration that the SCN was illegal, arbitrary, and without jurisdiction. It argued violations of mandatory procedures, including the non-issuance of Form DRC-01A, improper service under Section 169, and improper clubbing of multiple financial years without year-wise quantification or adherence to limitation periods. An interim application (IA No. 1 of 2025) under Section 151 of the Civil Procedure Code requested a stay on further proceedings pending disposal of the writ.

The respondents included the Union of India (represented by the Secretary, Ministry of Finance), the Assistant Commissioner Central Tax (Guntur), the Additional Commissioner Central Tax (Guntur), the Superintendent of Central Tax (Bhavanipuram Range, Vijayawada), and another Assistant Commissioner Central Tax (Guntur). Counsel for the petitioner was V. Sai Mallik, while Smt. D. Nagaraja Kumari represented the respondents.

The core legal questions before the court were: Does Notification No. 2/2017-Central Tax, which outlines territorial jurisdictions, implicitly grant all enumerated officers the power to invoke Section 122 for penalties? And does Circular No. 254/11/2025-GST sufficiently empower Assistant Commissioners to initiate such proceedings? The timeline of the case was swift, with the petition filed and disposed of on the same day, December 17, 2025, reflecting the urgency of challenging coercive tax actions.

Arguments Presented

The petitioner's counsel, Sri V. Sai Mallik, mounted a multi-pronged attack on the SCN's validity. Primarily, he contended that Section 122 of the CGST Act does not explicitly confer authority on any specific officer or authority to initiate or conduct penalty proceedings. Unlike other sections of the Act that delineate roles—such as Section 73 or 74 for demand determination—Section 122 lacks provisions for hearings, limitation periods, or procedural safeguards, rendering it prone to arbitrary application. The counsel argued that without clear delegation, the Assistant Commissioner's action exceeded jurisdictional bounds.

Additionally, the petitioner highlighted procedural infirmities: the SCN was not preceded by the mandatory summary of the notice in Form DRC-01A, violating principles of natural justice. Service was allegedly improper under Section 169, which requires registered post or electronic means for authenticity. Furthermore, the notice clubbed violations across multiple financial years without quantifying demands year-wise or respecting the five-year limitation under Section 74(10) for fraud cases, amounting to an abuse of process. Assuming arguendo any contravention, the petitioner urged that only the general penalty under Section 125 should apply, not the specific and harsher penalties under Section 122(ii) and (vii) for suppressing transactions or issuing bogus invoices.

On the respondents' side, Smt. D. Nagaraja Kumari, the learned Standing Counsel, defended the SCN by relying on statutory notifications and circulars. She pointed to Notification No. 2/2017-Central Tax, dated June 19, 2017, issued under Sections 3 and 5 of the CGST Act and Section 3 of the IGST Act. This notification designates various Central Tax Officers and vests them with "all the powers under both the said Acts and the rules made thereunder" within specified territorial jurisdictions, as per the tables annexed. She argued this broadly empowers officers like the Assistant Commissioner to exercise functions under Section 122.

The counsel further invoked Circular No. 254/11/2025-GST, dated October 27, 2025, which explicitly empowers Deputy or Assistant Commissioners to handle penalty matters under Section 122. She emphasized Section 5(1) of the CGST Act, which allows superior officers to exercise subordinate officers' jurisdictions, creating a hierarchical chain of authority. Dismissing the petitioner's procedural objections, she contended that the SCN complied with substantive requirements and that intelligence from the CCO justified the probe into circular trading, a common modus operandi for ITC evasion. The respondents maintained that quashing the SCN would undermine GST intelligence-driven enforcement.

These arguments framed a classic jurisdictional tussle: the petitioner seeking strict construction to protect taxpayers, and the respondents advocating a liberal interpretation to facilitate efficient tax administration.

Legal Analysis

The bench, led by Justice R. Raghunandan Rao, delivered a nuanced judgment focusing on statutory interpretation rather than delving into the merits of the alleged violations. The court sidestepped broader questions about Section 122's enforceability—such as the absence of hearing provisions or limitation periods—deeming them outside the writ's scope, which was limited to the issuing officer's jurisdiction.

Central to the analysis was the scope of Notification No. 2/2017. The court quoted the notification's language: "and the Central Tax Officers subordinate to them as Central Tax Officers and authorized them with all the powers under both the said Acts and the rules made thereunder with respect to the jurisdiction specified in the tables given below." Justice Rao observed that this phrasing did not confer "any further power" but merely fixed territorial limits for powers already vested by the CGST Act itself. In essence, the notification operationalizes existing statutory authorities without expanding them to include unenumerated functions like initiating Section 122 proceedings, which require explicit delegation.

The judgment distinguished between jurisdictional delineation and power conferment. While Circular No. 254/2025-GST indeed empowers Assistant Commissioners under Section 122, the court questioned whether the foundational Notification No. 2/2017 extended such authority to "all officers enumerated in the list." Referencing Section 5 of the CGST Act, which vests superior officers with subordinate powers, the bench noted that this hierarchy assumes baseline authorities are already assigned. However, for penalties involving potential financial burdens, the court implied a need for precise empowerment to avoid overreach.

No precedents were directly cited in the judgment, but the reasoning aligns with broader principles of administrative law under Article 226, emphasizing that executive notifications cannot exceed statutory limits (echoing cases like State of U.P. v. Renusagar Power Co. on delegation bounds). The court also invoked natural justice implicitly by noting procedural lapses but resolved the matter pragmatically without opining on them. This approach differentiates Section 122 proceedings—adjudicatory in nature—from mere jurisdictional assignments, cautioning against "blanket" empowerments that could lead to unchecked enforcement.

The analysis clarifies that while intelligence units like the CCO can flag issues, field officers must trace their authority back to specific provisions. For related-party transactions without fraud, as alleged here, the court hinted that Section 125's general penalty might suffice, distinguishing it from Section 122's specific offenses like suppression under subsection (ii) or bogus invoices under (vii).

Integrating insights from external reports, such as those noting the Andhra Pradesh High Court's consistent scrutiny of GST procedural compliance, this ruling reinforces that notifications are tools for organization, not carte blanche for penalties. It adds to a growing body of jurisprudence (e.g., similar challenges in other high courts) emphasizing quantified demands and timely notices.

Key Observations

The judgment features several pivotal excerpts that illuminate the court's reasoning:

• On the notification's true intent: "To the mind of this Court, this conferment of power can be taken to mean that the notification was not conferring any further power, but was only fixing the territorial jurisdiction of the officers in respect of the powers which are conferred on them by virtue of the act itself. In such circumstances, it may not be permissible to hold that authority had been granted, to all the officers enumerated in the list, in the said notification, with all the powers under the entire act including Section 122 of the CGST Act."

• On pragmatic resolution: "This Court does not propose to go into the question, of whether jurisdiction was conferred on all officers under the notification No.2/2017, as the simplest way of resolving this dispute would be to set aside the show cause notice, dated 01.09.2025, and leaving it open to the 3rd respondent to initiate fresh action under Section 122 of the CGST Act by issuing a fresh show cause notice."

• Limiting the writ's scope: "As far as the question of whether Section 122 of the CGST Act can be enforced and whether necessary safeguards are available is concerned, the same falls outside the scope of the present Writ Petition inasmuch as the question before this Court was only on the jurisdiction of the 3rd respondent in issuing the notice under Section 122 of the CGST Act. These issues are left open."

These observations underscore the court's restraint, prioritizing jurisdictional purity while preserving the revenue's ability to reinitiate compliant proceedings.

Court's Decision

The Andhra Pradesh High Court disposed of the writ petition by setting aside the impugned Show Cause Notice dated September 1, 2025, as lacking clear jurisdictional empowerment under Notification No. 2/2017. However, the bench granted liberty to the third respondent (Assistant Commissioner Central Tax) to issue a fresh SCN under Section 122, ensuring the merits of the allegations—such as circular trading—remain unaddressed and open for future adjudication. No costs were imposed, and pending miscellaneous petitions stood closed.

This decision has practical effects on GST administration. Taxpayers like Ganapati Ispat gain temporary relief from flawed notices, compelling authorities to ensure explicit power delegation in future actions. For instance, SCNs must now reference specific circulars or orders empowering the officer, alongside procedural compliance like DRC-01A issuance and proper service. The ruling may reduce arbitrary penalty impositions, particularly in intelligence-led probes, by mandating year-wise details to avoid limitation challenges.

Broader implications extend to future cases: High courts may increasingly scrutinize notifications for overbroad language, potentially leading CBIC to issue clarifying circulars. In a GST ecosystem handling trillions in collections annually, this promotes fairness, reducing litigation over procedural defects. Businesses in related-party trades benefit from clarified boundaries between Sections 122 and 125, possibly shifting focus to general penalties for non-fraudulent lapses. Ultimately, while empowering revenue through fresh proceedings, the judgment bolsters constitutional safeguards under Article 226, ensuring tax enforcement aligns with rule of law principles.