Fraudulent ITC Claims Rejected: Tax Demand Upheld, Appellate Remedies Preserved Under CGST Provisions

HC dismissed writ petition challenging tax demand related to fraudulent Input Tax Credit (ITC). The court found the impugned orders legally sustainable, noting goods-less transactions by the supplier and lack of merit in the petitioner's arguments. While denying pre-deposit waiver, the HC allowed appellate remedies under CGST Act, emphasizing that detailed factual scrutiny is beyond writ jurisdiction and best addressed through statutory appeal mechanisms.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

- Whether the impugned orders dated 17th December, 2024 and subsequent summary orders dated 4th and 12th February, 2025, which raised a demand for Input Tax Credit (ITC) for the Financial Year 2017-18 despite the Show Cause Notice relating to 2018-19, are legally sustainable.

- Whether the Petitioner's Delhi unit, which allegedly did not avail ITC during the relevant period, can be held liable for tax demand and penalty based on fraudulent ITC availed by the Gurgaon unit.

- Whether waiver of pre-deposit under Section 107 of the Central Goods and Services Tax Act, 2017 (CGST Act) can be granted in the present circumstances.

- The scope of writ jurisdiction in entertaining challenges to orders involving detailed factual and documentary scrutiny related to fraudulent ITC claims.

- The validity and consequences of retrospective cancellation of registration order dated 15th April, 2024.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of the Impugned Orders Raising Demand for FY 2017-18

The Petitioner contended that the Show Cause Notice dated 2nd August, 2024 pertained to FY 2018-19, but the impugned summary orders raised demand for FY 2017-18, thus rendering the orders unsustainable in law. The Court noted this factual discrepancy but observed that the impugned order dated 17th December, 2024 is a detailed order setting out the mechanism of fraudulent ITC availed through goods-less transactions involving the Petitioner and other entities.

The Court emphasized that the investigation revealed that the supplier firm, M/s Fortune Graphics Limited, from whom the Petitioner availed ITC, was not traceable and admitted to having supplied no goods. The e-way bill analysis corroborated that the movement of goods was bogus.

While the Petitioner argued that the Delhi unit did not avail ITC, the Court held that determining which entity availed ITC and the impact thereof requires detailed factual scrutiny of returns and invoices, which is beyond writ jurisdiction. Thus, the Court did not find the impugned orders to be legally unsustainable on the ground of mismatch of financial years but indicated that such factual issues are to be addressed in the appellate process.

Issue 2: Liability of Delhi Unit and Pre-Deposit Waiver

The Petitioner urged that since the Delhi unit had not availed ITC, it should not be penalized or required to make a pre-deposit. The Court noted that the officer had considered the returns (GSTR-2A and GSTR-3B) and recorded statements of the Petitioner's authorized person, concluding fraudulent availment of ITC.

Relying on a precedent where waiver of pre-deposit was denied in similar matters, the Court refused to grant waiver of pre-deposit. It observed that writ petitions challenging fraudulent ITC claims, especially where principles of natural justice have been complied with, are not maintainable. The Court allowed the Petitioner to pursue appellate remedies under Section 107 of the CGST Act by making the requisite pre-deposit.

Issue 3: Scope of Writ Jurisdiction in Fraudulent ITC Cases

The Court reiterated its earlier position in Mukesh Kumar Garg v. Union of India & Ors. that writ petitions are generally not maintainable in cases involving fraudulent ITC where the statutory procedure has been followed and natural justice complied with. The Court emphasized that detailed factual and documentary analysis, including scrutiny of returns and invoices, falls outside the scope of writ jurisdiction and is more appropriately dealt with in appellate proceedings.

Issue 4: Retrospective Cancellation of Registration

The Petitioner challenged the retrospective cancellation order dated 15th April, 2024. The Court clarified that the Petitioner is free to file a separate writ petition challenging the cancellation order, and that the present order does not affect the final decision of the Appellate Authority on that issue.

3. SIGNIFICANT HOLDINGS

- "The impugned order dated 17th December, 2024 is a detailed order, which has set out the entire mechanism, which has been adopted by the entities therein including the Petitioner, for fraudulently passing on and availing of ITC on goods-less transactions."

- "The investigation... reveals that M/s Fortune Graphics Limited... has admitted that no goods were supplied... the entire movement of goods itself was bogus and fake."

- "In the cases of availment of fraudulent ITC, this Court has already taken a view... that writ petitions would not be liable to be entertained, especially when there is compliance of the principles of Natural Justice."

- "The question... would be a factual analysis, which would require a closer scrutiny... beyond the scope of writ jurisdiction."

- The Court held that waiver of pre-deposit cannot be entertained in such matters, consistent with prior judicial pronouncements.

- The Court permitted the Petitioner to avail of appellate remedies under Section 107 of the CGST Act by making the requisite pre-deposit by a specified date and clarified that appeals filed with such pre-deposit shall be decided on merits and not dismissed on limitation grounds.

- The Court allowed the Petitioner liberty to file a separate writ petition challenging the retrospective cancellation order.

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