GST Circular Trading - Penalty Cannot Be Capped at Rs. 10K but levied Equivalent to Full ITC Passed on

Last updated: 23 May 2026

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The Madras High Court has ruled that penalties for GST circular trading, where input tax credit (ITC) is wrongly availed or passed on, cannot be capped at £10,000. The court determined that the penalty must be equivalent to the full amount of ineligible ITC, as stipulated by Section 122(1) of the CGST Act. This decision upholds the penalty orders against several medical equipment suppliers and clarifies that principles of proportionality from labour law do not apply to these GST penalties.

Court :
Madras High Court

Brief :
The Hon'ble Madras High Court in Tvl. SAM Enterprises & Ors. v. Commercial Tax Officer & Anr. [W.P. Nos. 2628 of 2026 and connected matters, dated February 18, 2026] dismissed the writ petitions filed by the assessee-entities engaged in alleged circular trading of medical equipment supplies, thereby upholding the penalty orders passed under Section 74 of the Central Goods and Services Tax Act, 2017 ( “the CGST Act” ). The Court held that the penalty under Section 122(1)(ii) and Section 122(1)(vii) of the CGST Act is mandatorily equivalent to the ineligible Input Tax Credit (ITC) availed or passed on — not capped at Rs. 10,000 — since the language of Section 122(1) of the CGST Act uses the expression "whichever is higher," leaving no discretion with the Assessing Officer to levy the lesser amount.

Citation :
W.P. Nos. 2628 of 2026 and connected matters, dated February 18, 2026

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1 Year PLAN - Rs.~~1999~~

1799

(Excl. of GST ₹323)

2 Years PLAN - Rs.~~3499~~

3149

(Excl. of GST ₹566)

BEST VALUE

3 Years PLAN - Rs.~~4999~~

4499

(Excl. of GST ₹809)

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Attached File : 671907_5989_tvl_sam_enterprises.pdf

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Judgement posted by

Bimal Jain

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FCA, FCS LLB with21 Yrs of Experience inTaxation Indirect and Direct: Education Qualification: B.Com (Hons) Chartered Accountants Company Secretary LLB Qualified SAP FI/CO Consultants Professional Membership: Chairmanof Indirect Tax Committee of PHD Chamber of Commerce Member of Indirec ... Read more

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