Writ petition dismissed challenging GST order for fraudulent Input Tax Credit under Section 75(5) CGST Act

The Delhi HC dismissed a writ petition challenging a GST order for fraudulent Input Tax Credit availment. The court held that adequate personal hearing was provided despite petitioners' claims of unclear relied upon documents (RUDs). The court noted petitioners failed to substantively address whether goods were actually supplied and ITC was rightfully availed. Regarding RUDs, the court ruled the department cannot be expected to provide re-typed copies of bulky investigation documents. The court found no violation of natural justice principles as proper hearing was granted under Section 75(5) CGST Act. Petitioners were granted liberty to file appeal under Section 107 CGST Act by July 15, 2025, with necessary pre-deposit, to be adjudicated on merits without limitation bar.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter include:

• Whether the impugned order raising a demand on the Petitioners for fraudulent availment of Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime is sustainable.
• Whether the Petitioners were accorded adequate opportunity of personal hearing in compliance with principles of natural justice and statutory provisions under the Central Goods and Service Tax Act, 2017 (CGST Act).
• Whether the documents relied upon by the Department (RUDs) were legible and sufficient to meet the requirements of natural justice.
• The scope and propriety of exercising writ jurisdiction under Article 226 of the Constitution of India in cases involving allegations of fraudulent availment of ITC.
• The applicability of the appellate remedy under Section 107 of the CGST Act and whether the Petitioners should be directed to approach the appellate authority instead of invoking writ jurisdiction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Sustainability of the impugned order demanding recovery on account of fraudulent ITC

Legal framework and precedents: The impugned order is issued under the GST regime, specifically invoking provisions related to fraudulent availment of ITC. Section 16 of the CGST Act governs the entitlement and conditions for availing ITC. Section 75(5) restricts the number of adjournments for personal hearings. Section 107 provides the appellate remedy against such orders.

The Court also referred to its earlier decision in a similar matter involving fraudulent ITC, where it was held that the facility of ITC is a crucial feature of the GST regime designed to avoid cascading of taxes but is susceptible to misuse by unscrupulous entities. The Court emphasized that writ jurisdiction is not the appropriate forum to adjudicate complex factual disputes involving fraudulent ITC claims.

Court's interpretation and reasoning: The Court observed that the impugned order was a detailed adjudication based on a complex investigation involving multiple entities and a large quantum of GST (over Rs.155 crores) and ITC (Rs.7.08 crores). The Petitioners had not raised substantive pleas in their reply disputing the genuineness of the supply or the correctness of ITC availed. The Department's findings of a network of firms generating goods-less invoices were supported by searches and detention of goods.

Key evidence and findings: The Department relied on a show cause notice, investigation reports, seized goods, and documents collected from various firms under investigation. The Petitioners' limited reply and attendance at only one hearing were noted. The Court found that the Petitioners failed to challenge the main factual allegations effectively.

Application of law to facts: The Court applied the legal principles governing ITC and found that the Petitioners' failure to rebut the Department's case and the evidence of goods-less invoices justified the demand. The impugned order was appealable, and the Court declined to interfere in writ jurisdiction.

Treatment of competing arguments: The Petitioners argued that the order was unsustainable due to inadequate hearings and illegible documents. The Court rejected these contentions on the ground that at least one hearing was granted and attended, and that the Department was not obliged to provide re-typed copies of voluminous documents.

Conclusions: The impugned order was held to be sustainable on the record. The Petitioners' challenge on the merits was to be pursued through the statutory appellate remedy.

Issue 2: Adequacy of opportunity for personal hearing and compliance with principles of natural justice

Legal framework: Section 75(5) of the CGST Act restricts adjournments for personal hearings to a maximum of three. Principles of natural justice require that a party be given a reasonable opportunity to be heard before adverse orders are passed.

Court's reasoning: The impugned order recorded that three dates for personal hearings were fixed and communicated to the Petitioners by post and email. The Petitioners attended one hearing on 03rd January, 2025. The Court noted that the Petitioners' claim of not being granted three hearings was untenable, especially since the Department's practice is to mention three hearing dates in the show cause notice itself.

Key evidence: The impugned order's recital of hearing dates and attendance records. The Petitioners' own reply and attendance on one date.

Application of law to facts: Since the Petitioners were granted at least one hearing and the statutory limit on adjournments is three, the Court found no violation of natural justice. The Department's refusal to grant further hearings or adjournments was consistent with the statutory framework.

Treatment of competing arguments: The Petitioners argued for additional hearings and better clarity of documents. The Court held that the Department was not obligated to provide re-typed or clearer copies of voluminous documents collected from multiple firms. The Petitioners' failure to attend hearings or submit replies on other dates was also noted.

Conclusions: The Court concluded that the Petitioners were accorded adequate opportunity to be heard in compliance with natural justice and statutory provisions.

Issue 3: Legibility and sufficiency of documents relied upon by the Department (RUDs)

Legal framework: Principles of natural justice require that a party be provided with documents relied upon to enable effective response. However, there is no absolute requirement for the Department to provide re-typed or clarified copies of original documents.

Court's reasoning: The Court observed that the RUDs were collected from various firms under investigation and were in the Department's possession. Given the bulk and nature of the documents, the Department could not be expected to supply re-typed or legible copies beyond what was available.

Application of law to facts: The Petitioners did not demonstrate that the illegibility of documents prejudiced their ability to respond. The Court found that the Department's actions were reasonable and did not violate natural justice.

Conclusions: The Petitioners' contention regarding illegible RUDs was rejected.

Issue 4: Appropriateness of exercising writ jurisdiction under Article 226 in cases of fraudulent ITC

Legal framework and precedents: Article 226 confers extraordinary writ jurisdiction. The Court reiterated its earlier rulings that writ jurisdiction is not ordinarily exercised in matters involving complex factual disputes and serious allegations of fraud affecting the revenue, especially where an alternative statutory remedy exists.

Court's reasoning: The Court emphasized the serious nature of the allegations involving a complex network of firms and fraudulent ITC amounting to crores of rupees. It noted that allowing writ petitions in such cases would encourage unscrupulous litigants to circumvent the appellate process and create multiplicity of litigation and contradictory findings.

Application of law to facts: Since the impugned order was appealable under Section 107 of the CGST Act and the Petitioners had not exhausted that remedy, the Court declined to entertain the writ petition.

Treatment of competing arguments: The Petitioners sought relief under writ jurisdiction to challenge the demand and penalty. The Court held that such matters require detailed factual adjudication in the appellate forum and not in writ proceedings.

Conclusions: Writ jurisdiction was held to be inappropriate in the present case.

Issue 5: Availability and direction regarding appellate remedy under Section 107 of the CGST Act

Legal framework: Section 107 provides the right to appeal against orders passed under the CGST Act. The appellate authority is empowered to adjudicate on merits.

Court's reasoning: The Court granted the Petitioners liberty to file an appeal before the appellate authority by a specified date with the requisite pre-deposit. It clarified that the appeal would be adjudicated on merits and would not be dismissed on limitation grounds if filed within the extended period.

Conclusions: The Petitioners were directed to pursue the appellate remedy and the writ petition was disposed accordingly.

3. SIGNIFICANT HOLDINGS

The Court held:

"The entire concept of Input Tax Credit, as recognized under Section 16 of the CGST Act is for enabling businesses to get input tax on the goods and services which are manufactured/supplied by them in the chain of business transactions. The same is meant as an incentive for businesses who need not pay taxes on the inputs, which have already been taxed at the source itself. The said facility, which was introduced under Section 16 of the CGST Act is a major feature of the GST regime, which is business friendly and is meant to enable ease of doing business."

"It is observed by this Court in a large number of writ petitions that this facility under Section 16 of the CGST Act has been misused by various individuals, firms, entities and companies to avail of ITC even when the output tax is not deposited or when the entities or individuals who had to deposit the output tax are themselves found to be not existent. Such misuse, if permitted to continue, would create an enormous dent in the GST regime itself."

"Insofar as exercise of writ jurisdiction itself is concerned, it is the settled position that this jurisdiction ought not be exercised by the Court to support the unscrupulous litigants."

"The persons, who are involved in such transactions, cannot be allowed to try different remedies before different forums, inasmuch as the same would also result in multiplicity of litigation and could also lead to contradictory findings of different Forums, Tribunals and Courts."

Core principles established include:

• Fraudulent availment of ITC undermines the GST regime and warrants strict scrutiny and adjudication through statutory appellate mechanisms.
• Principles of natural justice require a reasonable opportunity to be heard, but do not mandate unlimited hearings or re-typed copies of voluminous documents.
• Writ jurisdiction is not the appropriate forum to decide complex factual disputes involving revenue fraud where an alternative statutory appeal remedy exists.
• Petitioners must exhaust statutory remedies and cannot circumvent the appellate process through writ petitions.

Final determinations:

• The impugned order demanding recovery on account of fraudulent ITC was upheld on the record.
• The Petitioners were held to have been granted adequate opportunity of hearing.
• The Petitioners' challenge to the order was to be pursued through the appellate authority under Section 107 of the CGST Act.
• The writ petition was dismissed with liberty to file appeal within an extended timeline.

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