Firm denied input tax credit after being found non-existent at registered premises must pursue appellate remedy under Section 107

The Delhi HC dismissed a writ petition challenging denial of input tax credit (ITC) and imposition of recovery with interest and penalty. The petitioner firm was found non-existent with no operations at registered premises. The court declined to entertain the petition, citing precedent that writ jurisdiction cannot adjudicate factual aspects regarding the petitioner's role, justification of penalty, or proportionate reduction based on invoices raised. The court held it cannot determine penalty liability under Sections 122(1) and 122(3) of CGST Act. The petitioner was directed to pursue appellate remedy under Section 107 of CGST Act before the appellate authority by August 14, 2025, along with requisite pre-deposit. The petition was disposed of with direction to exhaust statutory remedies.

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ISSUES:

Whether a writ petition is maintainable challenging an appealable order passed under the CGST Act, 2017.Whether denial of Input Tax Credit (ITC) and imposition of demand, interest, and penalty under Sections 74(1), 50, and 122 of the CGST Act, 2017 is justified where the taxpayer is found to be non-existent.Whether non-service of Show Cause Notice (SCN) affects the validity of the impugned order.Whether the writ jurisdiction can be exercised to adjudicate complex factual disputes involving alleged fraudulent availment of ITC.

RULINGS / HOLDINGS:

The writ petition is not maintainable against an appealable order under Section 107 of the CGST Act, 2017, and the petitioner should be relegated to the appellate remedy.The denial of ITC amounting to Rs. 26,95,895/- and corresponding demand of interest and penalty under Sections 74(1), 50, and 122 of the CGST Act, 2017, is confirmed on the basis that the petitioner firm was found to be non-existent and involved in inadmissible ITC claims.The absence of service of the SCN can be remedied by furnishing a copy of the SCN to the petitioner, enabling the exercise of statutory appellate rights.The writ jurisdiction is not the appropriate forum to adjudicate on complex factual issues such as fraudulent availment of ITC, which require detailed factual analysis and are better suited for the appellate or adjudicatory authorities.

RATIONALE:

The Court relied on the statutory framework under the Central Goods and Services Tax Act, 2017, particularly Sections 16 (Input Tax Credit), 50 (Interest), 74 (Demand and Recovery in case of fraud etc.), 107 (Appeal to Appellate Authority), and 122 (Penalty), and corresponding provisions of the IGST and Delhi SGST Acts.The Court emphasized the purpose of Input Tax Credit under Section 16 as a business-friendly incentive to avoid double taxation, which is subject to misuse through fraudulent transactions involving non-existent entities.Precedent was cited to underscore that writ jurisdiction under Article 226 is extraordinary and should not be exercised to bypass statutory appellate mechanisms or to shield unscrupulous litigants.The Court noted the need to avoid multiplicity of litigation and contradictory findings by confining factual disputes to the appropriate forums designated under the CGST Act.The judgment reflects a doctrinal stance that complex tax disputes involving factual matrices and allegations of fraud are to be resolved through the statutory appellate process rather than writ petitions.

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