Facts:The petitioner, registered as an Input Service Distributor (ISD), accumulated Input Tax Credit during FY 2017-18 and 2018-19 and distributed the credit in March instead of distributing it month-wise. During audit, the department alleged violation of Rule 39(1)(a) of the CGST Rules which requires ITC available in a month to be distributed in the same month and issued a show cause notice proposing penalty of ₹8,38,67,332 under Section 122(1)(ix) of the CGST Act. The petitioner challenged the constitutional validity of Rule 39(1)(a) and the consequential proceedings.Court Decision:The High Court held that Section 20 of the CGST Act, as it stood prior to 01.04.2025, did not prescribe any time limit for distribution of Input Tax Credit by an Input Service Distributor. Rule 39(1)(a), by mandating that the credit available in a month must be distributed in the same month, introduced a substantive restriction not contemplated under the parent statute.The Court held that the rule-making authority cannot impose a limitation period through delegated legislation when the parent statute does not provide for such limitation. Consequently, Rule 39(1)(a) of the CGST Rules, to the extent it mandates distribution of ITC in the same month, was declared ultra vires Section 20 of the CGST Act.The Court further held that the audit proceedings and show cause notice were also vitiated due to violation of principles of natural justice and improper invocation of extended limitation when all details were disclosed in GST returns. Accordingly, Rule 39(1)(a) was struck down to that extent and the final audit report dated 22.01.2024 and show cause notice dated 30.01.2024 along with consequential proceedings were quashed.Cases Referred by Court:•    Lakshmi Rattan Engineering Works Ltd. vs. CST•    Sales Tax Officer vs. K. I. Abraham•    Global Energy Ltd. vs. Central Electricity Regulatory Commission•    Kunj Behari Lal Butail vs. State of H.P.•    M/s Kirloskar Brothers Ltd. vs. State of Jharkhand•    Bharat Barrel and Drum Manufacturing Company Ltd. vs. ESI Corporation•    Pushpam Pharmaceuticals Company vs. CCE 

Facts :The petitioner, a telecom service provider with multiple GST registrations, operated as an Input Service Distributor (ISD) for distribution of common input tax credit across its units. It challenged Rule 39(1)(a) requiring distribution of ITC in the same month as the invoice, both prior to and after amendment to Section 20 w.e.f. 01.04.2025. The petitioner contended that prior to amendment, there was no statutory power to prescribe such time limit and that the requirement was arbitrary and impossible to comply with. Show cause notices were issued alleging improper distribution of ITC not done in the same month as receipt of invoices.Court Decision:The Court upheld the validity of Rule 39(1)(a) of the CGST Rules. It held that prescription of time limit for distribution of ITC is within rule-making power and is a procedural requirement governing distribution mechanism. The requirement of distribution in the same month was held not arbitrary and having nexus with proper administration of GST and prevention of misuse. The Court rejected the contention that such requirement is impossible to comply with and held that ITC is a statutory benefit subject to conditions. The challenge to show cause notices was declined, holding that the petitioner can raise all contentions in adjudication proceedings.Cases Referred:Sales Tax Officer, Ponkunnam vs K.I. AbrahamJayam & Co. vs Assistant CommissionerUnion of India vs VKC Footsteps India Pvt. Ltd.ALD Automotive Pvt. Ltd. vs Commercial Tax Officer

Court DecisionThe Court allowed the writ petition and quashed the show cause notices and the Order-in-Original dated 1 February 2025 insofar as they imposed penalties of ₹133,60,60,889/- each on the petitioners under Section 122(1A) of the CGST Act.The Court held:Section 122(1A) applies to a “taxable person”:On a conjoint reading of Section 122(1) and 122(1A), the Court held that sub-section (1A) necessarily applies to a taxable person as defined under Section 2(107) of the CGST Act. The petitioners, being employees of M/s. Shemaroo Entertainment Ltd., were not taxable persons in their individual capacity and hence could not be proceeded against under Section 122(1A).Jurisdictional requirement not satisfied:Section 122(1A) requires that the person must (i) retain the benefit of the transaction covered under specified clauses of Section 122(1), and (ii) the transaction must be conducted at his instance. The impugned order did not record any finding that the petitioners retained any benefit of the alleged transactions. Therefore, the jurisdictional ingredients were not satisfied.No vicarious liability under Section 122(1A):The Court held that there is no principle of vicarious liability incorporated in Section 122 or Section 137 of the CGST Act so as to fasten such penalty on employees merely because they held managerial positions.Retrospective application impermissible:Section 122(1A) came into force with effect from 1 January 2021. The show cause notice covered the period from July 2017 onwards. The Court held that the penal provision could not be applied retrospectively for the period prior to 1 January 2021, in view of Article 20(1) of the Constitution of India.Accordingly, the impugned order was held to be illegal and without jurisdiction insofar as it related to the petitioners.Cases Referred by the Court1. Shantanu Sanjay Hundekari vs. Union of India, 2024 (89) G.S.T.L. 62 (Bom.)2. Union of India vs. Shantanu Sanjay Hundekari, (2025) 27 Centax 14 (S.C.)3. Bharat Parihar vs. State of Maharashtra & Ors., Writ Petition No. 3742 of 2023, decided on 30/06/2023.4. Mukesh Kumar Garg vs. Union of India & Ors., 2025 (5) TMI 922 – Delhi High Court

Facts :The petitioner, a registered GST dealer, was subjected to assessment proceedings under Section 73 of the CGST/KGST Act for certain tax periods. Discrepancies were found between GSTR-3B, GSTR-1, and GSTR-2A returns, leading to issuance of show-cause notices through the GST portal. The petitioner contended that such notices and consequent ex parte orders were not effectively communicated and came to light only during recovery proceedings. Due to lack of knowledge, the statutory appeal period expired.Court Decision:The Court held that uploading notices on the GST portal is a valid mode of service under Section 169, and a registered dealer is expected to monitor such communications. However, since the impugned orders were ex parte and had serious civil consequences, the Court balanced equities and set aside the orders. The matter was remitted for fresh adjudication subject to conditions: appearance before authority, filing objections, deposit of 20% of tax, and payment of ₹75,000 as costs. Non-compliance would result in revival of the original orders.

Facts :The petitioners’ goods and vehicles were intercepted and detained under Section 129 of the CGST/SGST Act on allegations of undervaluation of goods in transit.Orders in Form GST MOV-06 and MOV-10 were issued proposing confiscation and penalty.Petitioners challenged the detention and confiscation proceedings as without jurisdiction and sought release of goods and vehicles.The matters involved multiple writ petitions raising a common issue regarding valuation of goods at the stage of interception.Court Decision:The Court held that at the stage of interception under Section 129, authorities cannot undertake determination of valuation of goods.Issues relating to valuation and tax liability must be examined by the assessing authority and not by officers at check post during transit.Confiscation or penalty merely on the ground of undervaluation of goods in transit is not a valid exercise of power under Section 129/130.The Court also held that one State’s authorities cannot levy penalty or confiscate goods for alleged tax evasion in another State.Accordingly, goods and vehicles seized under the impugned orders were directed to be released.Cases Referred:Alfa Group vs Assistant State Tax Officer (Kerala High Court)K.P. Sugandam & Ors. vs State of Chhattisgarh & Ors.Pattal Andrea and Company vs Assistant Commercial Tax Officer & Ors.Panchi Trades vs State of GujaratShambu Saran Agarwal & Company vs Additional Commissioner Grade 5