Bogus demand of GST under Section 74 with equal penalty by GST officials in the State of Assam-

The High Court of Gauhati on 04/06/2026 handled one issue which narrates as to how the GST authorities shall behave and up to what extent they shall travel to recover the GST in violation of CBIC Circular itself. The WP (C) 2933 of 2026 in the matter of M/s. Narayan Enterprise And Anr., Sri Moloy Banik Versus The Union Of India, The Assistant Commissioner Central Goods Service Tax Central Excise Silchar, The Joint Commissioner Appeals Central Goods Service Tax Central Excise Customs Guwahati. - 2026 (6) TMI 577 - GAUHATI HIGH COURT others passed orders in favour the taxpayer based on the detailed examination of the relevant documents and also by going in depth on the facts of the case as well as extant legal provisions.

There was a seller in the State of West Bengal who supplied goods to several buyers in the State of Assam and three(if not more) such buyers situated at SILCHAR in the state of Assam were targeted by the DGCI during April 2019. It appears that the seller situated at W B has issued some invoices without actual supply of goods to a different buyer. The fact that in case a seller issues one bogus invoice, all other invoices need not be similar was not appreciated by the GST officials and the said taxpayer, M/s.Narayan Enterprises was summoned to appear before GST officials on 05/04/2019. The taxpayer appeared in person and submitted proof for receipt of goods, supply of goods to his buyer as well as proof for payment of GST amount to the seller well within time. Despite the fact that the goods in question were already sold by the buyer and applicable GST also was reflected in GSTR 3B during May 2018 till March 2019, search was ordered on the premises.

The search was conducted on 09/07/2019 and no incriminating materials were brought out during such search. Despite the fact that there is time up to 31/03/2024 for issuing show cause notice under section 73, SCN got issued on 30/07/2022 itself invoking section 74 and GST of 22, 22,195, applicable interest under section 50 as well as equal penalty were proposed in the SCN. In gross violation of Section 75 (4) of the CGST Act, OIO was passed on 19/02/2024 without even affording an opportunity of personal hearing. On receipt of OIO, the taxpayer preferred the first appeal and the Joint Commissioner on 07/01/2025 passed the OIA without detailed examination of facts as well as legal provisions.

Being aggrieved, writ was filed before the Gauhati High Court which came up for hearing on 04/06/2026. Being satisfied that there was no violation of Section 16 (2) (a) as well as 16 (2) (b), the high court allowed the writ. The case of the GST department was that the taxpayer has not received the goods which was subsequently sold and the applicable GST was also paid by Narayan Enterprises as evidenced from GSTR 3B.

It is observed that there are several contradictions in the entire proceedings which are enumerated below.

1. Section 74 has been wrongly invoked in gross violation of CBIC instructions dated 13/12/2023 which is the detailed guideline on Section 74 invocation.
2. The CBIC Circular number 171/03/2022 dated 06/07/2022 is squarely applicable in the instant case which is binding on GST officials and the same is overlooked.
3. When the taxpayer appeared in person on 05/05/2019 and furnished all the relevant data, which the high court found as satisfactory on 04/06/2026 was disregarded by GST officials.
4. Despite the fact that the search conducted on 09/07/2019 could not bring any incriminating materials, SCN got issued on 30/07/2022.
5. Section 74 was used to impose 100 % penalty despite the fact that time permissible under section 73 has not crossed as on 30/07/2022.
6. If the first appellate authority is going to reject the appeal which is very strong even in the writ before the high court, then what is the need for first appeal?.
7. Is it not the most appropriate time that CBIC looks into these practices of GST officials across all states in India who contribute enormously for litigation?
8. The precious time of the High Court is spent on a small issue and not on legal interpretation only due to the error committed at adjudication as well as the first appeal levels? .

The operative portion of the order is furnished for the information of all concerned. '17. Accordingly, the impugned Order-in-Original No. 23/GST/AC/SIL/2023-24 dated 19.02.2024 passed by the Assistant Commissioner, Central Goods and Services Tax & Central Excise Division, Silchar, and the Order-in-Appeal No. GAPPL/ADC/GSTP/2032/2024-APPEAL-O/O COMMR-CGST-APPL-GUWAHATI dated 07.01.2025 passed by the Joint Commissioner, CGST, Central Excise and Customs, Guwahati, are hereby set aside and quashed. It is, however, made clear that the respondent authorities shall be at liberty to proceed in accordance with law in the event there are materials indicating that the transactions in question were not bona fide or were entered into in collusion with the suppliers, as observed by the Division Bench in National Plasto Moulding'.

It is hoped that as GSTAT is operational as on date, GST officials all over India realise the fact that when an order be it adjudication or arising out of first appeal, is set aside or quashed at a later date, then it is established that the officers have passed incorrect orders.