2025 (8) TMI 315 - HC - GST

Order upholds that replies did not contest fraudulent ITC from nonexistent firms; consolidated SCNs valid; appeal by Aug 31, 2025

Ambika Traders Through Proprietor Gaurav Gupta Versus Additional Commissioner, Adjudication DGGSTI, CGST Delhi North.

HC upheld the Adjudicating Authority's finding that the petitioner's replies did not prima facie contest investigations into fraudulent availment and ... Availment and further passing on of fraudulent ITC - ITC is based on invoices issued from non-existent or fake firms - non-consideration of the replies filed by the petitioner - violation of principles of natural justice - consideration of reply - Consolidated SCN for Multiple Financial Years. Consideration of the reply - HELD THAT:- The reply does not prima facie contest the investigation and the facts revealed therein. In a case of fraudulent availment of ITC or utilization of ITC, the best evidence for a person who is genuinely conducing a business would be to state the exact nature of the goods sold, the quantities purchased/sold, etc. There is, prima facie, no averment in the reply or the additional reply giving such details. Thus, the conclusion of the Adjudicating Authority cannot be held to be arbitrary or perverse. Consolidated SCN for Multiple Financial Years - HELD THAT:- The nature of ITC is such that fraudulent utilization and availment of the same cannot be established on most occasions without connecting transactions over different financial years. The purchase could be shown in one financial year and the supply may be shown in the next financial year. It is only when either are found to be fabricated or the firms are found to be fake that the maze of transactions can be analysed and established as being fraudulent or bogus - A solitary availment or utilization of ITC in one financial year may actually not be capable of by itself establishing the pattern of fraudulent availment or utilization. It is only when the series of transactions are analysed, investigated, and enquired into, and a consistent pattern is established, that the fraudulent availment and utilization of ITC may be revealed. The language in the abovementioned provisions i.e., the word ‘period’ or ‘periods’ as against ‘inancial year’ or ‘assessment year’ are therefore, significant. In the facts of this case, no prejudice is caused to the Petitioner if cross-examination is not afforded as all the documents relied upon by the Adjudicating Authority are those which have been recovered from the Petitioner’s premises itself and the Petitioner is well in the knowledge of the actual status of the purchasers and the suppliers - This Court has already taken a view that interference in such cases in writ jurisdiction is limited. The Court cannot go into analysis of facts in writ jurisdiction. It is well-settled in law that the High Court, despite being vested with wide and extensive powers under Articles 226 and 227 of the Constitution of India, must exercise such powers within the bounds of judicial discipline and established legal principles. The jurisdiction of the High Court does not extend to reappreciation of evidence or interference with factual findings recorded by the competent authorities. The High Court cannot assume the role of an Appellate Authority for adjudication of disputed questions of fact. The limitation for availing of the appellate remedy, however, has expired in terms of Section 107 of the CGST Act. Since the petition has remained pending before this Court since April 2025, the Petitioner is given time till 31st August, 2025 to file an appeal challenging the impugned order dated 23rd January 2025 along with the requisite pre-deposit. If the same is filed within the stipulated time, the appeal shall not be dismissed on the ground of being barred by limitation and shall be adjudicated on merits. Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority's impugned order is vitiated by non-consideration of the replies dated 19.12.2024 and 30.12.2024 in violation of principles of natural justice and Section 74(9) of the CGST Act. 2. Whether refusal to permit cross-examination of witnesses/officers (on petitioner's application) vitiates the adjudication order and amounts to denial of a fair hearing. 3. Whether a consolidated Show Cause Notice (SCN) and consequent adjudication covering multiple financial years is impermissible under Sections 73/74 of the CGST Act. 4. Whether the impugned order travels beyond the grounds specified in the SCN (Section 75(7)) or otherwise exceeds the scope of the SCN. 5. Whether the writ jurisdiction under Articles 226/227 was properly invoked instead of relegation to the statutory appellate remedy under Section 107, having regard to availability of efficacious alternative remedy, limitation and exceptions to exhaustion rule. 6. Whether, on the material before the Adjudicating Authority, invocation of extended limitation under Section 74(1) and imposition of tax, interest and penalty for fraudulent availment/utilisation of ITC was justified. 7. Ancillary legal questions: burden of proof under Section 155, treatment of Circular No.171/03/2022-GST, and the scope of cross-examination as a matter of right in SCN proceedings. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Consideration of replies / Natural justice / Section 74(9) Legal framework: Section 74(9) requires the proper officer to determine amounts 'after considering the representation, if any, made by the person chargeable with tax.' Principles of natural justice require adjudicating authorities to consider representations and afford a hearing. Precedent treatment: The Court relied upon general principles that an adjudicatory order must show consideration of submissions; cases cited elsewhere stress that denial of opportunity to be heard may vitiate proceedings if prejudice results. Interpretation and reasoning: The Court examined the impugned order (approx. 100 pages) and the two replies, concluding the Adjudicating Authority expressly considered the replies and afforded multiple personal hearings. The content of the replies was largely technical and did not set out substantive factual particulars (e.g., exact nature/quantity of goods) that would rebut the investigative findings. Thus non-consideration was not established. Ratio vs. Obiter: Ratio - an adjudication will not be set aside for non-consideration of representations if the order on its face demonstrates consideration and the replies do not raise substantive factual material causing prejudice. Conclusion: No violation of Section 74(9) or principles of natural justice was made out on the material; replies were considered and refusal to accept them does not ipso facto vitiate the order. Issue 2 - Right to cross-examination Legal framework: No absolute statutory right to cross-examination in SCN/adjudication proceedings; cross-examination may be permitted where necessary to prevent prejudice and ensure fair hearing. Precedent treatment: Court followed and applied precedents holding cross-examination is not an unfettered right (authority cited from coordinate benches and Supreme Court decisions), and failure to permit it vitiates proceedings only where prejudice is shown. Interpretation and reasoning: The Court held that blanket requests for cross-examination converting SCN proceedings into 'mini-trials' are impermissible; specific reasons and identification of particular witnesses are required. Here, documents and RUDs were mainly recovered from petitioner's premises and material facts were within petitioner's knowledge; petitioner failed to demonstrate prejudice from denial of cross-examination. Ratio vs. Obiter: Ratio - cross-examination in tax adjudication is discretionary, requires case-specific justification, and absence thereof will vitiate orders only if prejudice is demonstrable. Conclusion: Rejection of petitioner's broad request for cross-examination did not invalidate the impugned order; no substantial prejudice was shown. Issue 3 - Consolidated SCN for multiple financial years Legal framework: Sections 73(3),(4) and 74(3),(4) permit notices/statements 'for any period' or 'for such periods' while Sections 73(10)/74(10) frame limitation in terms of 'financial year.' Tax period is defined by return period; scheme contemplates linkage across periods. Precedent treatment: The Court followed a coordinate bench decision and legislative language to hold consolidated notices over multiple years permissible; prior decisions rejecting such challenges were relied upon. Interpretation and reasoning: The Court reasoned fraudulent availment/utilisation of ITC often spans multiple periods (purchases in one year, supplies in another) and analysis of series of transactions is necessary to establish pattern of fraud; statutory language and practice support consolidated SCNs to capture such patterns. Ratio vs. Obiter: Ratio - consolidated SCNs covering multiple financial years are permissible where the statutory language, factual interconnectedness and investigative necessity justify doing so. Conclusion: Consolidated SCN for 2017-18 to 2021-22 was lawful; challenge on this ground failed. Issue 4 - Whether order travels beyond SCN (Section 75(7)) Legal framework: Section 75(7) bars confirming demands on grounds other than those specified in the notice. Interpretation and reasoning: The impugned SCN expressly proposed demands of tax, interest and penalty for wrongful availment/utilisation of ITC and under Section 122; the adjudication remained within those contemplated heads. The Court found no material beyond the scope of SCN that would render the order ultra vires. Ratio vs. Obiter: Ratio - an adjudication that addresses tax, interest and penalty in the same heads as the SCN does not, by that fact, travel beyond the SCN. Conclusion: No excess beyond SCN grounds established. Issue 5 - Maintainability of writ petition vs. statutory appellate remedy (Section 107) Legal framework: Writ jurisdiction under Articles 226/227 is discretionary; availability of efficacious alternative statutory remedy normally requires exhaustion unless exceptional circumstances (e.g., breach of fundamental rights, violation of natural justice, excess of jurisdiction, or vires challenge) exist. Precedent treatment: Court applied Supreme Court and High Court authorities (including Commercial Steel Ltd. and others) reiterating limited scope for writs where statutory appeal is available and exceptions are narrow. Interpretation and reasoning: No exceptional circumstance established - replies were considered, no demonstrable denial of natural justice or excess of jurisdiction shown, and the order is appealable under Section 107. Accordingly, writ jurisdiction should not ordinarily be exercised. In view of limitation having expired, the Court granted a limited extension (till 31.08.2025) to file appeal with requisite pre-deposit, expressly protecting appellant from time-bar dismissal. Ratio vs. Obiter: Ratio - writ petition was not maintainable in absence of exceptional circumstances; remand to appellate remedy is appropriate, but Court may extend limitation where equity demands. Conclusion: Petition dismissed subject to leave to file appeal within extended period; litigant relegated to statutory remedy. Issue 6 - Justification for invoking Section 74(1) (extended limitation), and imposition of tax, interest, penalty for fraudulent ITC Legal framework: Section 74 provides extended limitation and heavier consequences where fraud, wilful misstatement or suppression of facts is found; Section 155 places burden of proof of ITC eligibility on the claimant. Interpretation and reasoning: Investigation revealed numerous non-existent/fake suppliers, transporters non-traceable, network of invoices, proprietor's statements implicating routing of money and receipt of consideration to third parties; RUDs recovered from petitioner's premises. Adjudicating Authority found wilful suppression and conspiracy to defraud government exchequer. Given burden lies on petitioner to prove genuineness and absence of substantive rebuttal (no records showing actual purchases/supplies), invocation of Section 74(1) and penalties was held justified on available material. Ratio vs. Obiter: Ratio - where investigation demonstrates a network of fake firms, absence of documentary/transactional evidence from the claimant and admissions suggestive of routing/fraud, invocation of Section 74 and concomitant penalties can be justified; burden of proof rests on claimant under Section 155. Conclusion: Findings of fraudulent availment/utilisation of ITC and consequent demands/penalties sustained on prima facie material; merits to be adjudicated on appeal. Issue 7 - Treatment of Circular No.171/03/2022-GST and ancillary points Legal framework: Administrative circulars inform departmental practice but their binding effect is constrained; Section 168(1) gives some weight to board circulars but they cannot override statutory scheme. Interpretation and reasoning: Petitioner relied on the Circular to argue absence of outward supplies would negate tax liability under Sections 73/74 and limit penalty heads. The Court observed that circulars do not supplant statutory provisions; factual matrix showed fraudulent availing/utilisation of ITC even absent outward supply and circular did not oust statutory remedies; hence circular reliance did not displace the statutory adjudicatory findings. Ratio vs. Obiter: Obiter/short ratio - circular cannot be invoked to defeat statutory scheme where material shows fraud; affected contentions can be pursued before appellate forum. Conclusion: Circular did not operate to render the SCN or order unsustainable on the facts found. Cross-references and final disposition All issues of fact and evidence are left open for adjudication on appeal; the Court emphasized limited scope of writ review, affirmed applicability of statutory appellate remedy, extended time to file appeal till 31.08.2025, and directed deposit requirements to be addressed before appellate authority. Costs awarded to the Court's Bar Association were imposed.