Clarify GST Penalty Under Rule 86B, Section 129: Petition Filed in Allahabad HC

The Allahabad High Court is currently looking into a case brought by Hundal Traders. They are challenging a decision made by the State Tax Officer from the Mobile Squad-3 in Saharanpur.

The STO has begun the proceedings u/s 20 of the Integrated Goods and Services Tax Act, 2017 (IGST Act), and Section 129 of the Central Goods and Services Tax Act, 2017 (CGST Act), charging a penalty of ₹92,452 u/s 129(1)(a) of the CGST Act.

The applicant’s counsel raised two influential legal questions to the court. The first concerns the authority to begin proceedings u/s 129 of the CGST Act for an alleged breach of Rule 86B of the CGST Rules, 2017.

The second problem is related to the jurisdiction of the STO to start these proceedings and pass the impugned order, particularly under Circular No. 3/3/2017-GST dated July 5, 2017, issued by the Central Board of Excise and Customs. The same circular is laid on by the applicant, apparently granting the authority concerning section 129(3) of the CGST Act, particularly on the Deputy or Assistant Commissioner of Central Tax.

A counter affidavit has been furnished by the respondents; the HC observed that it does not address the legal problems of the applicant effectively. Particularly, the counter affidavit was laid on an office order on July 1, 2017, which is related to the authority under the Uttar Pradesh Goods and Services Tax Act, 2017 (UPGST Act), and the applicant’s challenge is established on the CGST Act and a central government circular. Also, under Section 20 of the IGST Act, read with Section 129 of the CGST Act, the impugned order was passed, counting intricacy to a jurisdictional question.

The applicability of Rule 86B of the CGST rules has been questioned by the applicant to the particular situations of the case, quoting proviso (d) to the rule as revised by Notification No. 94/2020 dated December 22, 2020. It was marked by the court that the counter-affidavit of the respondent furnished merely a cursory and factually inappropriate response to the same aspect of the claim of the applicant.

The Allahabad High Court, considering the unresolved statutory and factual problems, asked the respondents to submit a supplementary counter-affidavit. The same affidavit is to explain the power of the STO to start the proceedings and pass the order as per the sections of the IGST and CGST Acts, considering the central government circular quoted by the applicant and the applicability of Rule 86B under the cited proviso.

The forthcoming hearing has been scheduled by the court for May 14, 2025, by which time the supplementary counter-affidavit is anticipated to be filed.