Canon India was about customs officers, not central tax officers: Patna HC upholds GST audit circulars

A Division Bench rejects a challenge to the authority of Audit Commissionerate officers, holding that a decision about the DRI cannot be lifted out of its statutory setting.

A line from a Supreme Court judgment about the Directorate of Revenue Intelligence has been doing a great deal of work in GST litigation. On 18 September 2026, in M/s Moral Pharmaceuticals Private Limited v. The Union of India, a Division Bench of the Patna High Court — Justice Rajeev Ranjan Prasad and Justice Sunil Dutta Mishra — held that it cannot be made to do that work, because the two statutes are not the same and the officers are not in the same position.

The petitioner, a pharmaceuticals company registered in Patna, challenged the validity of circulars under which officers of the Audit Commissionerate exercise functions in relation to it. The argument, put shortly, was that those officers had never been properly assigned the functions of a “proper officer”, and that on the authority of Canon India Private Limited and Sayed Ali everything they had done was without jurisdiction.

What Canon India actually decided

The Bench began by putting the two decisions back into their setting. The issue in both Canon India and Sayed Ali was whether an officer of the DRI could be a “proper officer” within the meaning of Section 2(34) of the Customs Act without the Central Government having designated DRI officers as customs officers in the first place.

That question does not arise here, because it is admitted that the officers of the Audit Commissionerate are central tax officers. Once that admission is on the record, the Bench held, it is more than sufficient to distinguish both decisions. The difficulty in Canon India was an attempt to confer powers under the Customs Act on officers who were not officers of customs at all.

The judgment supports that reading with a proposition about how precedent is to be used, drawing on Union of India v. Dhanwanti Devi: it is not proper to read a sentence or a word torn out of the context in which it was employed, and every judgment must be read as applicable to the particular facts proved or assumed, since the generality of the expressions found in it is not intended to be an exposition of the whole law.

Where the power actually comes from

The petitioner had fixed on the circular’s reference to Section 2(91) of the CGST Act, which defines “proper officer” in relation to any function as the Commissioner or the officer of central tax to whom the function is assigned. The argument was that a definition clause cannot itself be a source of power to assign.

The Bench agreed with the premise and rejected the conclusion. Though the circular of 5 July 2017 refers to Section 2(91), that definition clause is not the source of the power under which it was issued. Section 3 of the CGST Act empowers the Government, by notification, to appoint classes of officers for the purposes of the Act. In exercise of the powers conferred by Section 3 read with Section 5 of the CGST Act and Section 3 of the IGST Act, the Central Government had already, by notification dated 19 June 2017, appointed those classes of officers.

Section 4 supplies the remainder of the structure. The Board may, in addition to the officers notified by the Government under Section 3, appoint such persons as it thinks fit to be officers under the Act; and without prejudice to that, it may by order authorise officers referred to in the enumerated clauses of Section 3 to appoint officers of central tax below a specified rank.

In this case, the Bench recorded, not even any dispute was raised about the officers referred to in the impugned circulars being central tax officers.

Two High Courts already there

The Bench was not writing on a blank slate, and it said so.

In Fomento Resorts & Hotels Ltd., the Bombay High Court had considered an identical issue and decided in favour of the Revenue, taking express note of Canon India and working through the distinction between the provisions of the Customs Act and those of the CGST Act. An appeal against that judgment is pending before the Supreme Court — a fact counsel for the petitioner relied on in seeking an adjournment.

In Yasho Industries Ltd., a Division Bench of the Gujarat High Court had rejected a contention similar to the one now raised, and had likewise distinguished Canon India and Sayed Ali, holding that the assignment of functions need not take the particular form the petitioner there insisted on.

The Patna Bench adopted that reasoning, reproducing the relevant passages from the Bombay judgment at length rather than paraphrasing them — a choice that makes the judgment useful as a single place to find the argument assembled.

Why it matters to taxpayers

The jurisdictional challenge to GST audit and adjudication has become a standard opening move, and its attraction is obvious: if the officer who issued the notice was never a proper officer, nothing that followed survives, whatever the merits.

What this judgment does is close that route where the officer is admittedly a central tax officer. The petitioner’s case depended on treating Canon India as authority for a general proposition that functions can only be assigned by a particular instrument. Read against its facts, it is authority for something narrower: that you cannot make someone a proper officer under the Customs Act when he is not a customs officer to begin with.

The pendency of the appeal in Fomento Resorts means the question is not finally settled, and the judgment does not pretend otherwise. But the Bench declined to hold its hand on that account, and taxpayers in Bihar now have a Division Bench decision against the contention, in line with Bombay and Gujarat.

Order

The Bench found no merit in the challenge to the validity of the circulars, holding that the officers concerned are central tax officers, that the source of the power is Section 3 read with Sections 4 and 5 of the CGST Act and the notification of 19 June 2017 rather than the definition in Section 2(91), and that Canon India and Sayed Ali are distinguishable. The writ petition was disposed of accordingly.