The Ultra Vires Question: Can CBIC Circulars Assign Proper Officers for GST Penalty Provisions? – A Critical Analysis of Circular No. 254/11/2025-GST
Introduction
The Central Board of Indirect Taxes and Customs (CBIC) recently issued Circular No. 254/11/2025-GST dated October 27, 2025, which, among other things, assigns “proper officers” for imposing penalties under Section 122 of the Central Goods and Services Tax Act, 2017 (CGST Act). This administrative action has raised significant legal questions about the Board’s authority to make such assignments through a mere circular rather than through the parent statute or rules framed thereunder.
The Circular’s Provisions
Circular No. 254/11/2025-GST assigns various levels of tax officers as “proper officers” for Section 122 of the CGST Act with specific monetary thresholds. It designates Superintendents of Central Tax for penalties not exceeding ₹10 lakh (CGST) or ₹20 lakh (IGST); Deputy/Assistant Commissioners for penalties above ₹10 lakh up to ₹1 crore (CGST) or above ₹20 lakh up to ₹2 crore (IGST); and Additional/Joint Commissioners for penalties above ₹1 crore (CGST) or above ₹2 crore (IGST).
The circular cites Section 2(91) of the CGST Act, read with Section 5(1) and 5(2), as the legal basis for this assignment. This reliance on a definitional provision to create substantive assignments of power forms the crux of the legal controversy surrounding this circular.
The Legal Controversy
At the heart of this controversy lies a fundamental question of administrative law: Can the CBIC, through a circular, designate which officers may exercise the statutory power to impose penalties under Section 122, when the CGST Act itself does not specifically make this assignment?
Section 122 of the CGST Act prescribes penalties for various offenses but does not specify which officer may impose these penalties. The Act uses the term “proper officer” without explicit designation. Section 2(91) defines “proper officer” as “the Commissioner or the officer of the central tax who is assigned that function by the Commissioner or the Board.” While this definition allows for assignment by “the Board,” tax law experts question whether this general definitional provision is sufficient legal basis for assigning penalty powers through a circular.
Arguments against the Circular’s Validity
The doctrine of strict interpretation of tax statutes, especially penalty provisions, is well-established in Indian jurisprudence. In Dilip Kumar & Co. v. Commissioner of Customs (2018), the Supreme Court emphasized that tax statutes must be interpreted strictly, and ambiguities must be resolved in favor of the taxpayer. Following this principle, the assignment of penalty powers should be explicitly provided in the Act itself or in rules properly framed under the Act, rather than through administrative circulars.
The assignment of officers for imposing penalties is arguably a substantive matter affecting taxpayers’ rights rather than a mere procedural clarification. In Commissioner of Central Excise v. Ratan Melting & Wire Industries (2008), the Supreme Court clarified that circulars cannot override or go beyond statutory provisions. By creating a hierarchical structure of penalty powers not explicitly contemplated in the Act, the circular may be overstepping its bounds.
Furthermore, the CGST Act prescribes specific methods for officer appointments and delegations. Section 3 provides for appointment of officers “by notification”; Section 4 authorizes SGST officers “by notification”; and Section 167 addresses delegation of powers “by notification.” This consistent pattern suggests that significant designations of authority should be done through notifications, not circulars.
In Govind Saran Ganga Saran v. CST (1985), the Supreme Court held that provisions imposing penalties must be strictly construed, and authorities to impose such penalties must derive their jurisdiction from explicit statutory provisions, not administrative instructions. This principle directly challenges the validity of the circular’s attempt to designate proper officers for penalty proceedings.
Arguments Supporting the Circular’s Validity
Proponents of the circular argue that Section 2(91)’s definition of “proper officer” expressly allows “the Board” to assign functions to officers, providing sufficient statutory basis for the circular. This interpretation views the circular as merely implementing the assignment power explicitly granted in the definition.
In Collector of Central Excise v. Dai Ichi Karkaria Ltd. (1999), the Supreme Court recognized the necessity for administrative authorities to issue clarificatory circulars for smooth tax administration. The circular could be seen as fulfilling this administrative necessity by clarifying which officers may exercise penalty powers, thereby promoting consistency and efficiency in tax administration.
Some also advance the argument that the power to impose penalties implies the power to designate who may impose them. This finds support in the principle of implied powers necessary for effective implementation of the statute. Without clear designation of proper officers, the penalty provisions might remain unimplementable.
Potential Implications
If the circular is found ultra vires, several significant consequences would follow. Past penalty orders issued under Section 122 by officers designated solely by this circular could be legally vulnerable, creating uncertainty in concluded proceedings. The government would need to address the gap through appropriate amendments to the Act or by framing rules under proper statutory authority. Moreover, taxpayers facing penalty proceedings might challenge the jurisdiction of officers acting under the circular’s authority, potentially delaying enforcement actions.
Conclusion
The attempt to assign proper officers for Section 122 penalties through Circular No. 254/11/2025-GST represents a textbook case of the tension between administrative efficiency and strict legality in tax administration. While the CBIC likely issued this circular to streamline penalty proceedings, the legal foundation for doing so appears questionable under established principles of tax jurisprudence.
This controversy highlights the need for legislative clarity in the assignment of proper officers for various functions under the GST regime. Until the matter is settled through judicial pronouncement or legislative amendment, taxpayers and practitioners should remain vigilant about jurisdictional challenges in penalty proceedings under Section 122.
As the Hon’ble Supreme Court observed in CIT v. Anjum M.H. Ghaswala (2001), “Where the statute prescribes a particular mode for exercising power, that mode alone must be followed.” Whether the CBIC has adhered to this principle in issuing Circular No. 254/11/2025-GST remains a question that may ultimately require judicial determination. The issue serves as a reminder of the importance of proper legislative authorization in tax administration, particularly when it comes to imposing penalties that significantly affect taxpayers’ rights and obligations.
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Disclaimer: This article presents an academic analysis of a legal issue and should not be construed as legal advice. Readers should consult qualified tax professionals for specific guidance.
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