GST | CBIC Circulars Cannot Shield Dubious Transactions; Must Operate Within Statutory Framework: Calcutta High Court

Justice Om Narayan Rai stated that it cannot be doubted that a circular issued by the Central Board of Indirect Taxes & Customs would be binding on all its officers but at the same time there can also not be any cavil to the proposition that a circular issued by the Board whether instructive or clarificatory or otherwise has to operate within the statutory framework and has to be applied only when there is no doubt raised regarding the genuineness of the consignment and the transaction and the documents are in order.

In the case at hand, the assessee/petitioner was a dealer of areca nuts and has been conducting his business throughout India. While the goods were in transit to Nagpur, Maharashtra, the department intercepted the vehicle containing the assessee's goods.

It was alleged that the existence of the assessee's supplier was dubious and that the actual weight of the consignment found during physical verification exceeded the weight mentioned in the tax invoice.

Subsequently, a show cause notice in form GST MOV-07 was issued by the department to the assessee imposing a penalty of Rs.3,57,200/- under Section 129(1)(a) as well as a penalty of Rs.35,72,000/- under Section 129(1)(b).

An order was passed by the Assistant Commissioner (HAEU) Central GST & CX/respondent no. 2, confirming the demand made in the show cause notice imposing penalties under Section 129(1)(a) as well as Section 129(1)(b) of the CGST Act of 2017.

The counsel for the assessee argued that the order impugned in any case is liable to be interfered with inasmuch as the department has illegally invoked the provisions of Section 129(1)(b) of the CGST Act of 2017 (Central Goods and Services Tax Act) when the assessee whose name figures as the consignor in the invoices as well as the e-way bill has himself come forward and sought release of the goods.

In order to demonstrate that the assessee is entitled to be treated as the owner of the consignment, the counsel for the assessee relies on the circular dated December 31, 2018, issued by the Central Board of Indirect Taxes and Customs whereby it has been clarified that if the invoice or any other specified document is accompanying the consignment of goods, then either the consignor or the consignee should be deemed to be the owner.

The department submitted that the circular dated December 31, 2018, relied on by the assessee is to be applied only in cases where invoices or the specified documents accompanying the consignment are absolutely in order and beyond doubt. Since the genuineness of the assessee's supplier has not been established and there is a discrepancy in the goods, the circular dated December 31, 2018, cannot be resorted to by the assessee.

The bench opined that the said Circular cannot be applied to such cases where the very transaction or the genuineness thereof is doubted and where the invoices and/or the e-way bill are/is under question.

The said Circular should not be treated as a shield to ward off legal scrutiny and shelve legal action in cases involving undisclosed transactions, and/or dubious invoices and bills, added the bench.

The bench opined that the assessee can file an appeal to the appellate authority under Section 107 of the CGST Act of 2017 against the impugned order.

In view of the above, the bench directed the department/GST authorities to provide the GST ID and password to the assessee in order to enable the assessee to file the appeal.

Case Title: M/s. JJ Traders v. Union of India & Ors.

Case Number: WPA 2144 of 2025

Counsel for Petitioner/Assessee: P. Verma and Pooja Sah

Counsel for Respondent/Department: Ratan Banik and Bishwaraj Agarwal

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