Punjab and Haryana High Court Sets Aside Section 122 GST Penalty for Absence of Show Cause Notice

Background of the GST penalty dispute

The petitioner approached the Punjab and Haryana High Court against a penalty imposed under Section 122 of the CGST Act through an order dated 4 December 2025.

The principal objection was procedural. According to the petitioner, the department had not issued a show cause notice proposing action under Section 122 and had not granted an opportunity to explain why the penalty should not be imposed.

A penalty creates a separate civil consequence for the taxpayer. The authority must therefore identify the alleged contravention, disclose the proposed action and allow the affected person to submit a reply before reaching an adverse conclusion.

Revenue admitted that no Section 122 notice was issued

During the hearing, the Revenue conceded that no notice had been issued for initiating the penalty proceedings under Section 122.

This admission was important because it removed any factual dispute about service or adequacy of the notice. The case was not about a taxpayer ignoring a valid notice. The necessary notice itself had not been issued.

Without a notice identifying the proposed penalty and the grounds supporting it, the taxpayer had no meaningful opportunity to answer the allegation before the order was passed.

What Section 122 of the CGST Act covers

Section 122 prescribes penalties for specified GST contraventions. Depending on the allegation and the applicable clause, the provision may cover conduct such as issuing an invoice without supply, wrongful input tax credit, failure to pay tax collected, false information, obstruction and other listed defaults.

The existence of a penalty provision does not remove the need for a fair procedure. Before imposing a penalty, the authority must clearly identify the alleged contravention and connect the available facts with the relevant statutory clause.

A taxpayer must be able to understand the exact allegation, the material relied upon and the proposed financial consequence so that an effective reply can be filed.

Section 126(3) makes the opportunity of hearing mandatory

Section 126 contains general disciplines relating to GST penalties. Sub-section (3) states that no penalty shall be imposed on any person without issuing a notice and giving that person a reasonable opportunity of being heard.

The requirement is not a minor formality. It protects the taxpayer against an adverse penalty order being passed without prior knowledge of the case that must be answered.

The High Court relied on this statutory safeguard and found the impugned penalty unsustainable because the necessary notice and hearing had not been provided.

Punjab and Haryana High Court's decision

The High Court set aside the Section 122 penalty after recording the absence of a show cause notice and the Revenue's concession on that point.

The Court treated the failure as a breach of the statutory requirement under Section 126(3) and the principles of natural justice. A penalty order passed through such a defective process could not be allowed to stand.

The ruling focuses on the legality of the penalty procedure. It should not be read as a factual finding that every underlying GST allegation was necessarily incorrect.

Why a demand notice may not automatically support a separate penalty

Where the department proposes a distinct penalty under Section 122, the notice should clearly communicate that proposal and the specific statutory basis. A taxpayer should not be required to guess that a separate penalty may arise from a notice dealing with some other demand or proceeding.

The notice should ordinarily state the relevant clause, the alleged act or omission, the factual material relied upon and the proposed amount or basis of penalty. The final order should remain within the case communicated through the notice.

If the order introduces a penalty that was never proposed, the taxpayer may have a strong procedural objection based on Section 126(3) and natural justice.

Practical lessons for GST taxpayers

• Check whether the notice expressly proposes a penalty under Section 122.
• Verify that the notice identifies the exact clause and alleged contravention.
• Preserve the notice, portal communication, reply, hearing request and final order.
• Compare the allegations in the final order with those contained in the notice.
• Raise the absence of notice or hearing promptly before the appropriate authority or court.
• Do not ignore an otherwise valid notice merely because the proposed demand appears incorrect.

Checklist before imposing a Section 122 penalty

• Issue a clear show cause notice proposing the penalty.
• State the relevant Section 122 clause and supporting facts.
• Provide access to the material relied upon.
• Allow reasonable time to file a reply and supporting documents.
• Grant an opportunity of personal hearing where required.
• Consider the reply and record reasons in the final order.
• Ensure that the order does not travel beyond the allegations in the notice.

Key takeaways

• The challenged penalty order was dated 4 December 2025.
• The Revenue admitted that no notice had been issued for initiating the Section 122 penalty proceedings.
• Section 126(3) requires notice and a reasonable opportunity of hearing before a GST penalty is imposed.
• The High Court held that the penalty could not survive the procedural defect.
• The decision reinforces that penalty proceedings must follow a clear and fair statutory process.

Conclusion

Vikas Kumar Omar v. Principal Commissioner, CGST Commissionerate, Rohtak and Another reinforces a basic rule of GST adjudication: a penalty cannot be imposed first and explained later. When the department proposes action under Section 122, it must issue a proper notice and provide a reasonable opportunity of hearing as required by Section 126(3).

For taxpayers, the decision shows why every notice and order should be compared carefully. For tax authorities, it confirms that compliance with the prescribed procedure is essential to a sustainable penalty order.