Jurisdictional Validity of GST Proper Officers: Patna High Court Upholds CBIC Circulars in Moral Pharmaceuticals Case

The assignment of functions to "proper officers" under the Goods and Services Tax (GST) framework has been a subject of intense legal scrutiny, heavily influenced by parallel jurisprudence under the customs law. In a significant judicial development, the Patna High Court, in the case of Moral Pharmaceuticals Private Limited Vs Union of India, has provided critical clarity on the jurisdictional competence of Central Tax officers. The Court decisively upheld the validity of multiple circulars issued by the Central Board of Indirect Taxes and Customs (CBIC) that assign proper officer functions to Central Tax officers, distinguishing the statutory scheme of the GST regime from the precedent set under the Customs Act, 1962.

This comprehensive analysis delves into the factual matrix of the dispute, the legal challenges mounted by the assessee regarding officer jurisdiction, the nuanced interpretation of statutory provisions by the High Court, and the reaffirmation of the doctrine of alternative statutory remedy.

Factual Matrix of the Dispute

The assessee, Moral Pharmaceuticals Private Limited, is a private limited company primarily engaged in the supply of pharmaceutical goods with its principal place of business in Patna, Bihar. The genesis of the legal dispute traces back to an investigation initiated on the basis of data shared by the Assistant Audit Officer, DGA (Central), Lucknow.

Following the data analysis, the revenue authorities issued a show-cause notice to the assessee. The notice alleged that the assessee had contravened the provisions of Section 9 and Section 59 of the Central Goods and Services Tax Act, 2017 (CGST Act) and the Bihar Goods and Services Tax Act, 2017 (BGST Act). Specifically, it was alleged that the assessee had declared an incorrect and false value of taxable supply during the Financial Year 2017-18, resulting in a substantial short payment of tax.

As per the show-cause notice, the initial proposed demand stood at ₹5,10,00,146 (comprising CGST of ₹2,55,00,073 and SGST of ₹2,55,00,073). The authorities proposed to recover this amount under Section 74(1) of the CGST Act / BGST Act, along with applicable interest under Section 50 and an equivalent penalty under Section 74(1) read with Section 122(2)(b) of the CGST Act / BGST Act.

The Adjudication Proceedings

The assessee actively participated in the adjudication process, submitting a detailed defense reply on 07.08.2024 to explain the alleged discrepancies, particularly those arising in the GSTR-9C reconciliation statement. Furthermore, the assessee was granted an opportunity for a personal hearing.

Upon reviewing the submissions, the adjudicating authority observed that the tax liability concerning sales turnover reported as 'consignment sales' in the reconciliation worksheet had not been discharged. These consignment sales were notably absent from the annual returns filed in Form GSTR-9 and formed part of an un-reconciled turnover reported in Table-6 of GSTR-9C.