Section 122 under GST - Who Can Initiate, Who Can Be Penalised and How to Appeal

A Penalty Dispute Raising Questions Beyond the Quantum of Penalty

Proceedings under Section 122 of the CGST Act, 2017 are generally treated as penalty proceedings arising from specified contraventions. However, the Delhi High Court's decision in Rohit Garg, Manoj Bansal, Sagar Garg, Rahul Solanki, Director Srivenkateshwar Tradex Pvt. Ltd., M/s Siwon Enterprises Pvt Ltd Through Its Director Sh Vikrant Singhal, Sachin Singhal, M/s Ms Singhal Trading India Pvt Ltd Through Its Director Sh Vikrant Singhal, Sh. Vikrant Singhal, Ravi Garg, M/s Pm Trading Co Through Its Proprietor Nisha Jain, M/s Gsvm Steel India Pvt Ltd Through Its Director Sh Gaurav Jain, Sh Pradeep Agrawal, Gourav Jain, M/s Hpsm Steel India Pvt Ltd Through Its Director Sh Gourav Jain, M/s. Shri Jain Timber Traders Through Its Proprietor Sh Saurav Jain, M/s Mayur Material Trading Company Through Its Partner Sh. Sunny Aggarwal, Sunny Aggarwal, Krishan Kumar (Non-Taxable Entity) Versus Union Of India And Ors., Commissioner, Central Tax Delhi West & Ors. -  2026 (9) TMI 536 - DELHI HIGH COURT, goes considerably beyond the ordinary question of whether a penalty was correctly imposed. The batch of writ petitions raised fundamental issues concerning the competence of officers to initiate proceedings under Section 122, the statutory significance of the expression "taxable person", the conditions governing the vested right of appeal, and the circumstances in which such objections should be examined in writ jurisdiction rather than in a statutory appeal.

The controversy arose from investigations into alleged issuance of invoices without actual supply, wrongful availment or passing on of Input Tax Credit, and related contraventions. In the principal batch, Show Cause Notices dated 30.06.2025 were issued under Section 122 for FYs 2018-19 to 2024-25. The proceedings involved very substantial penalties. In the lead matter concerning M/S Siwon Enterprises Pvt. Ltd., the SCN/DRC- 01 proposed a liability of about Rs. 45.55 crore, whereas the subsequent DRC- 07 reflected an aggregate liability of approximately Rs. 227.72 crore.

The petitioners challenged the proceedings on several grounds. Apart from questioning the competence of the officers issuing the notices, they alleged mechanical multiplication of penalties, non- consideration of replies and documents, denial of cross- examination, non- supply of relied- upon documents, improper reliance upon statements and electronic material, clubbing of financial years, and inconsistent findings emerging from the same investigation. Some petitioners also questioned whether Section 122(1) could at all apply to persons who were not "taxable persons".

The High Court, however, did not undertake a final adjudication of all these controversies. Its approach was more nuanced: it clarified certain legal principles, left some questions open, and directed the Appellate Authority to examine the remaining factual and legal objections under Section 107.

"Proper Officer" Is Function-Specific - But Absence of Specific Assignment Does Not Automatically Establish Lack of Jurisdiction

One of the principal challenges concerned the competence of the officers who had initiated proceedings under Section 122. The petitioners relied heavily on Section 2(91), which defines "proper officer" in relation to any function as the Commissioner or an officer of Central Tax assigned that function by the Commissioner in the Board.

The petitioners also relied on Circular No. 254/11/2025-GST dated 27.10.2025. The Circular subsequently assigned proper officers for functions under Section 122 and recorded that no proper officer had earlier been assigned for those functions. According to the petitioners, this demonstrated that the officers issuing the earlier notices lacked the necessary assignment, and that a subsequent Circular could not retrospectively validate notices that were void at inception.

The Court recognised the importance of the function-specific character of the expression "proper officer". An officer's designation or rank and the assignment of a particular statutory function are conceptually distinct. Nevertheless, the enquiry could not stop merely at the absence of a specific Section 122 assignment.

Sections 3 and 5 of the CGST Act confer powers upon Central Tax officers. Further, Notification No. 14/2017-Central Tax dated 01.07.2017 invested DGGI officers with powers exercisable by Central Tax officers of corresponding rank, while Notification No. 02/2017-Central Tax dated 19.06.2017 assigned specified functions to different classes of Central Tax officers. These provisions and notifications had to be considered together while determining the officer's authority.

The Court therefore declined to accept the proposition that the absence of a specific assignment under Section 2(91), by itself, necessarily deprived an officer otherwise empowered under Sections 3 and 5 of all authority to initiate Section 122 proceedings. The subsequent Circular could clarify the manner in which Section 122 functions were to be exercised, but it could not be read in isolation so as to nullify statutory notifications already operating under the Act.

Significantly, the Court did not finally reject the jurisdictional objection on merits. It held that the objection did not disclose such a patent or self-evident absence of jurisdiction as would justify interference under Article 226. The petitioners were expressly permitted to raise the same objection before the Appellate Authority.

This distinction is important. The judgment should not be read as laying down an unrestricted proposition that every DGGI or Central Tax officer was necessarily a proper officer for every Section 122 function before the Circular dated 27.10.2025. The narrower principle is that, having regard to the existing statutory provisions and notifications, the objection required fuller examination and did not establish a patent lack of jurisdiction sufficient to bypass the statutory appeal.

Section 122(1) Uses "Taxable Person" - Section 122(1A) Uses "Any Person"

Another important controversy arose from the language used by Parliament in Section 122 itself. Section 122(1) imposes specified penalties for contraventions committed by a "taxable person". Section 122(1A), by contrast, is differently worded and applies to "any person" who retains the benefit of specified transactions and at whose instance such transactions are conducted.

The distinction cannot be dismissed as merely semantic. A "taxable person" is a statutorily defined expression, whereas "any person" is plainly broader. The deliberate use of different expressions in neighbouring provisions naturally raises the question whether a person who is neither registered nor liable to registration can nevertheless be subjected to penalty under Section 122(1). The High Court expressly recognised that this controversy was not merely academic.

The Department argued that persons actively facilitating the issuance of invoices without actual supply or fraudulent availment and passing on of ITC could not avoid penal consequences merely by claiming that they were not taxable persons or had not personally received the benefit. For Section 122(1A), reliance was also placed on its statutory language and on Section 137 concerning offences by companies.

The High Court nevertheless refrained from finally deciding the scope of Section 122(1). The same issue was already pending before the Supreme Court in Mukesh Kumar Garg Versus Union Of India & Ors. - 2025 (8) TMI 469 - SC Order. The Delhi High Court had also left the issue open in Arun Kumar Jain, Prem Chand Gupta, Rajeev Gupta, Ravi Aggarwal, Vinay Mittal, Arun Kumar Jain, Arun Sharma, Amit Gupta Versus Additional Commissioner CGST Delhi West Commissionerate & Ors., Union Of India & Ors. - 2026 (8) TMI 908 - DELHI HIGH COURT

Accordingly, the question whether Section 122(1) can be invoked against a person who is not a "taxable person" was expressly left open. The petitioners could raise the issue in appeal, and its ultimate resolution would remain subject to the decision of the Supreme Court.

For practitioners, this is an important area to watch. Until the Supreme Court settles the controversy, the expressions "taxable person" in Section 122(1) and "any person" in Section 122(1A) should not be treated as interchangeable.

The Right of Appeal Carries the Conditions Existing When the Lis Commences

The most definitive part of the judgment concerns the amended pre-deposit requirement under Section 107(6).

Notification No. 16/2025-Central Tax, dated 17.09.2025, brought the amended requirement relating to pre-deposit in penalty-only orders into force from 01.10.2025. The question was whether this subsequently introduced condition could apply to appeals arising from adjudicatory proceedings that had already commenced before that date.

The petitioners invoked the settled principle that the right of appeal is a substantive vested right. Reliance was placed on the Supreme Court decision in Hoosein Kasam Dada (India) Ltd. Versus The State of Madhya Pradesh and Others -  1953 (2) TMI 35 - Supreme Court, and the Delhi High Court decision in Gaurav Jain & Anr. Versus Joint Commissioner (Appeals-II) CGST Delhi Zone & Anr. - 2026 (8) TMI 85 - DELHI HIGH COURT.

Following Gaurav Jain, the High Court held that the substituted proviso to Section 107(6), effective from 01.10.2025, could not govern appeals arising from proceedings initiated by Show Cause Notices issued before that date. The conditions attached to the appellate remedy were governed by the law applicable when the adjudicatory proceedings commenced.

This conclusion has substantial practical significance. The relevant date is not the date on which the Order-in-Original is passed or the appeal is actually filed. Where the underlying adjudicatory proceedings commenced before 01.10.2025, the subsequent amendment cannot impose the new pre-deposit condition merely because the adjudication concluded after that date.

Thus, since all the SCNs involved in the batch were issued before 01.10.2025, the appeals were to be governed by Section 107(6) as it stood on the respective dates on which those proceedings commenced.

A Later Order Cannot Alter the Pre-Deposit Condition Attached to an Existing Right of Appeal

The principle assumes greater importance because tax proceedings frequently span several months or even years. An SCN may be issued under one statutory regime, while adjudication may conclude after an amendment affecting the appellate remedy.

If the pre-deposit condition were determined solely by the law in force when the appeal is ultimately filed, the legislature could effectively attach a substantially more onerous condition to a right of appeal that had already accrued with the commencement of the lis. The doctrine of vested appellate rights protects against such a result unless the legislature clearly provides otherwise.

The High Court therefore made the operative position explicit: appeals arising from SCNs issued before 01.10.2025 could not be rejected merely by applying the substituted proviso to Section 107(6) because the Orders-in-Original were passed after that date.

This part of the ruling is particularly significant for pending GST litigation involving penalty-only orders. The first enquiry should not merely be: When was the order passed? It should be: When did the adjudicatory proceedings giving rise to the appeal commence?

Serious Adjudicatory Objections Do Not Automatically Justify Bypassing the Statutory Appeal

The petitioners raised several substantial objections to the adjudication. These included non-consideration of replies, failure to supply relied-upon documents, denial of an effective personal hearing and cross-examination, questionable evidentiary value of statements and electronic records, multiplication of penalties under different clauses of Section 122, clubbing of financial years, and contradictory findings arising from the same investigation.

The High Court did not treat these objections as insignificant. Rather, it considered them unsuitable for determination in writ jurisdiction because their resolution required a detailed examination of the underlying records and the individual factual position of each noticee.

Section 107 provides an appellate forum competent to examine both questions of fact and questions of law. The Appellate Authority can therefore examine whether the adjudicating officer travelled beyond the SCN, whether multiple penalties were legally sustainable, whether documents were properly considered, whether cross-examination was wrongly refused, and whether the evidentiary material was legally sufficient.

The Court recognised the settled proposition that the availability of an alternative remedy is not an absolute bar to writ jurisdiction. Reference was made to The Assistant Commissioner of State Tax and Others Versus M/s Commercial Steel Limited - 2021 (9) TMI 480 - Supreme Court. Writ jurisdiction may still be exercised in recognised exceptional circumstances, including violation of fundamental rights, breach of natural justice, excess or absence of jurisdiction, or a challenge to the vires of legislation.

But merely describing an objection as "jurisdictional" or a grievance as a "breach of natural justice" does not automatically bring the case within an exception. The nature of the defect and the factual enquiry necessary to determine it remain important.

Jurisdictional Objections Can Be Raised in Statutory Appeal

Relegation to the statutory appellate remedy does not extinguish a jurisdictional objection. The High Court expressly permitted the petitioners to challenge, before the Appellate Authority, the competence of the officers initiating Section 122 proceedings, while leaving open the applicability of Section 122(1) to persons who are not "taxable persons."

Thus, where the alleged defect does not establish a patent lack of jurisdiction warranting writ interference, the objection can still be raised and decided on the merits in the statutory appeal under Section 107.

Statutory Appeal Is the Proper Forum for Fact-Intensive Disputes

The High Court relegated the petitioners to the statutory appeal under Section 107, thereby permitting them to raise all factual, legal and jurisdictional objections before the Appellate Authority. They were also permitted to exclude the period spent before the High Court while computing limitation.

The judgment, therefore, does not affirm the penalties on merits; it merely holds that the disputed factual and procedural issues should ordinarily be examined in the statutory appellate proceedings.

Three Principles Emerging from the Ruling

Rohit Garg reinforces three principles: officer competence must be tested against the complete statutory framework; the scope of Section 122(1) remains distinct from Section 122(1A); and the conditions of appeal are governed by the law prevailing when the adjudicatory proceedings commenced.

Fact-intensive and other non-patent jurisdictional objections should ordinarily be examined in the statutory appeal under Section 107.

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