Jurisdictional Validity of GST Penalty Proceedings Under Section 122: An Analysis of Proper Officer Appointments
Overview of Recent CBIC Circular on Officer Designations
The Central Board of Indirect Taxes and Customs (CBIC) recently released Circular No. 254/11/2025-GST dated 27/10/2025, which designated proper officers for the administration of Section 122, 74A, 75(2) of CGST Act, 2017 along with Rule 142(1A) of CGST Rules, 2017. A significant admission within this circular reveals that prior to its publication, no proper officer had been formally assigned for these specific provisions. This acknowledgment carries profound implications for numerous assessees who had already received penalty notices under Section 122 before the circular's issuance, particularly in matters involving fraudulent invoicing schemes.
The validity of potentially thousands of penalty notices and consequent orders issued before 27/10/2025 now stands on questionable legal ground. This development has triggered widespread concern among assessees regarding whether such proceedings initiated without proper officer designation can withstand judicial scrutiny. The fundamental question centers on jurisdictional competence and whether retrospective validation through administrative circulars can cure such inherent defects.
Statutory Framework for Officer Appointment Under GST Law
Section 5 of CGST Act, 2017 confers authority upon the board to designate proper officers and prescribe their respective powers. In exercise of this authority, CBIC had previously issued multiple circulars including 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, appointing proper officers for numerous provisions and rules under the GST regime.
Notably absent from these designations was any specific appointment of officers for Section 122. Despite this lacuna, tax officers routinely cited Section 122 when issuing notices under Section 73 and 74 for penalty imposition until 2022. This practice continued without explicit statutory authorization for such officers to exercise penal powers under Section 122.
The landscape shifted when CBIC issued Circular No. 171/03/2022-GST dated July 6, 2022, which clarified that officers possess authority to impose penalty exclusively under Section 122 in situations where no underlying supply exists. Following this clarification, officers began independently issuing notices directly under Section 122 without coupling them with Section 73/74 proceedings of CGST Act, 2017, ultimately confirming penalties purely under Section 122.
Can Circular No. 254/11/2025-GST Operate Retrospectively?
The express admission contained in Circular No. 254/11/2025-GST dated 27/10/2025 regarding the absence of proper officer designation under Section 122 raises a fundamental jurisdictional question: can this circular retrospectively validate proceedings commenced from July 2017 onward? The legal answer, grounded in well-established judicial principles, is definitively negative.
Judicial Precedents on Retrospective Validation Through Circulars
Courts have consistently maintained that administrative circulars cannot possess retrospective effect when attempting to remedy jurisdictional deficiencies. The Constitution Bench in Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire Industries (2008) 10 TMI 5 (SC) categorically established that while circulars bind revenue authorities, they cannot supersede judicial decisions or retrospectively cure jurisdictional defects.
A critical distinction exists between circulars that confer benefits versus those imposing burdens. Circulars granting benefits may operate retrospectively; however, circulars that impose burdens, create liabilities, or manufacture jurisdiction where none previously existed are deemed prejudicial and oppressive. This principle received affirmation in Suchitra Components Ltd. Vs Commissioner Of Central Excise, Guntur, 2007 (1) TMI 4 – Supreme Court, and subsequently 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 establishing jurisdictional authority for the first time, cannot reach backward through time to legitimize previously issued notices. Retrospective validation remains impossible due to settled jurisprudence against retrospectively curing jurisdictional defects. The introduction of proper officer designation constitutes creation of jurisdiction rather than clarification, making retrospective application impermissible.
Recent High Court Decision on Pre-Circular Section 122 Notices
The Andhra Pradesh High Court recently addressed this precise issue in Ganapathi Ispat Vs UOI in WP No.31263/2025, setting aside notices issued under Section 122 prior to Circular No. 254/11/2025-GST dated 27/10/2025. The court held that it would be impermissible to conclude that all officers notified under Notification No. 02/2017-CT dated 28-06-2017 possessed powers under Section 122 by implication.
However, the High Court granted liberty to the revenue department to issue fresh notices under Section 122, recognizing the procedural cure available within limitation periods. This approach balances the jurisdictional nullity of original notices with the revenue's legitimate interest in pursuing valid penalty proceedings through properly designated officers.
Limitation Period Questions for Section 122 Proceedings
If existing notices are declared invalid, officers retain the ability to re-issue notices within time limits prescribed under Section 73/74. This raises an important subsidiary question: what limitation period governs notice issuance specifically under Section 122?
Strict Interpretation of Section 122
A literal reading of Section 122 reveals no explicit time limit for issuing notices under this provision. The section focuses on prescribed penalties for various contraventions but remains silent on temporal restrictions for initiating proceedings.
Alternative Interpretation Through Section 127
An alternative perspective exists based on Section 127 of CGST Act, 2017, which empowers officers to impose penalties after providing reasonable opportunity of being heard in cases not covered under Section 62, 63, 64, 73, 74, 129 and 130, without specifying any time limitation. This interpretation suggests that penalty proceedings under Section 122, being independent of recovery proceedings, may not face statutory limitation periods.
The correct legal position on this aspect awaits further judicial development and authoritative guidance from higher forums. Assessees and practitioners must monitor evolving jurisprudence on this critical limitation question.