2025 (10) TMI 104 - HC - GST

Prima facie link between GST registration and fraudulent ITC via bogus invoices; appeal allowed under Section 107 with pre-deposit deadline

HC found prima facie evidence that the petitioner's GST registration and transactions were linked to fraudulent ITC through bogus invoices and noted ... Maintainability of petition - availability of alternative remedy - Fraudulent availment of ineligible ITC on the strength of fake and bogus invoices from non-existing suppliers - Petitioner is not in a position to make the pre-deposit - HELD THAT:- It is pertinent to note that Petitioner got its GST registration only on 6th July 2019, and that the entirety of the suspicious transactions took place during the financial years 2019-20 and 2020-21. It is further noted that immediately thereafter, upon the arrest of the Petitioner, the business operations of the Petitioner were also discontinued. Thus, there is some basis for the GST Department to argue that the Petitioner itself was incorporated to pass on fraudulent ITC, in an illegal and unlawful manner as the Petitioner’s GST registration was alive for less than two Financial years. The Court has also perused the reply filed by the Petitioner to the impugned SCN. However, the same does not inspire any confidence at this stage - In any case, since the impugned OIO is an appealable order under Section 107 of the Act, the Court is of the opinion that an appeal ought to be filed by the Petitioner, along with the requisite pre-deposit. The present writ petition was filed within the period of limitation prescribed under Section 107 of the Act. Now, even the period of limitation for filing the appeal has expired. Since the petition was filed within the period of limitation, the Petitioner is permitted to file the appeal by 15th December 2025, along with the requisite pre-deposit - petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the Order-in-Original confirming demand of Input Tax Credit, interest and imposing penalties under Sections 74(1), 50 and 122(1) of the CGST/SGST Act, read with Section 20 of the IGST Act, is liable to be set aside on writ jurisdiction under Article 226, notwithstanding the alternate remedy of appeal under Section 107. 2. Whether the Circular dated 6th July, 2022 (CBIC clarification on fake invoices) precludes imposition of tax/demand and restricts the revenue to levying only penalty in proceedings involving alleged fake invoices and ineligible ITC. 3. Whether facts found in investigation - searches, statements (including retractions), alleged use of brokers, cancellation of supplier registrations and arrest of the proprietor - furnish sufficient material to sustain a demand and penalties for fraudulent availment and passing-on of ITC. 4. Whether a writ petition filed within the statutory limitation for appeal under Section 107 can operate to permit filing of the appeal after the expiry of the limitation period, and what conditions (including pre-deposit) should be imposed for such extension. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of writ challenge to an appealable Order-in-Original (Sections 74, 50 and 122 demand/penalty) Legal framework: Article 226 confers writ jurisdiction; Section 107 provides the statutory appellate remedy against orders under the Act. Pre-deposit conditions for filing appeal are prescribed by statute. Interpretation and reasoning: The Court recognised that the impugned OIO is an appealable order under Section 107 and therefore the statutory appellate remedy is ordinarily the appropriate forum. The Court declined to exercise extraordinary writ jurisdiction to supplant the appellate route, directing the petitioner to file the statutory appeal with requisite pre-deposit. Precedent treatment: No specific precedent was invoked in the judgment; the approach follows settled administrative law principles that writ jurisdiction will not normally be used where an efficacious statutory appeal exists. Ratio vs. Obiter: Ratio - Writ jurisdiction is not exercised to bypass the appeal forum where the order is appealable under Section 107; petitioner must pursue appeal with pre-deposit. Obiter - none beyond reasoning upholding normal forum discipline. Conclusion: The petition challenging the appealable OIO under Article 226 was disposed by directing filing of appeal under Section 107 with pre-deposit; the writ was not retained to decide merits of demand/penalty. Issue 2 - Effect of CBIC Circular dated 6th July 2022 on liability to tax versus penalty in fake-invoice cases Legal framework: Administrative clarification (CBIC circular) addressing applicability of demand and penalty provisions in transactions involving fake invoices; statutory provisions imposing tax/demand (Sections 74, 50) and penalties (Sections 122, 132 etc.). Interpretation and reasoning: The petitioner relied on the circular to contend that no tax demand could be imposed and only penalty could be levied. The Court noted the submission but did not accept it as a ground to quash the OIO at the writ stage. Given availability of appeal and the factual controversies, the Court directed adjudication of such contentions in appeal rather than on writ. Precedent treatment: No precedent was applied or overruled; the Court's disposition indicates that administrative circulars will be considered in the appellate adjudication but do not by themselves preclude the requirement to follow statutory appellate process. Ratio vs. Obiter: Obiter - The circular cannot be used at the writ-admission stage to avoid statutory appellate remedy; question of circular's legal effect to negate tax demands remains to be adjudicated on merits in appeal. Conclusion: The claim that the circular precludes tax demand was not accepted as a basis to retain or allow the writ; the correctness of the circular's application to these facts is to be examined in the appeal. Issue 3 - Sufficiency of investigative material to sustain findings of fraudulent availment and passing-on of ITC Legal framework: Requirement of material evidence to establish fraudulent availment of ineligible ITC via fake/non-existent suppliers; relevance of searches, recorded statements, retractions, cancellation of supplier registrations, and arrest under Section 69/Sections 132(1)(b),(c). Interpretation and reasoning: The Court reviewed the salient facts: the petitioner's GST registration shortly before the transactions, the concentration of suspicious transactions in two financial years, searches at residential and office premises, statements of the proprietor (including admissions and subsequent retractions), statements of third parties, cancellation of supplier registrations, and the proprietor's arrest for alleged offences. The Court observed these facts lent some basis to the Department's view that the petitioner may have been incorporated to pass fraudulent ITC and that the reply to the SCN did not inspire confidence at this stage. Precedent treatment: No precedents cited; the Court's approach was fact-driven, noting sufficiency for continuation of departmental action and appellate adjudication rather than immediate quashing on writ grounds. Ratio vs. Obiter: Obiter - The Court's observations on the investigative material are provisional and were made in support of the decision to direct appeal filing; they do not constitute final adjudication on culpability. Conclusion: The investigative record was sufficiently prima facie to justify confirmation of demand/penalty on merits to be examined in appeal; not a ground for immediate writ relief. Issue 4 - Effect of filing writ within limitation on the time-bar for appeal and conditions for extension Legal framework: Statutory limitation for filing an appeal under Section 107; principles permitting equitable extension where writ is filed within limitation and merits of delay are considered. Interpretation and reasoning: The petition was filed within the period of limitation prescribed for appeal, but the appeal period had subsequently expired. The Court exercised its discretion to permit filing of the appeal by a specified date (15th December 2025) despite expiry of appeal period, on condition that the requisite pre-deposit accompany the appeal. The Court further directed that if appeal is filed within stipulated time with pre-deposit, it shall be adjudicated on merits and not treated as barred by limitation. Precedent treatment: No specific authorities cited. The direction aligns with jurisprudence permitting extension/condonation where litigant had sought judicial remedy within limitation and statutory appeal period lapsed while writ was pending. Ratio vs. Obiter: Ratio - Where writ is filed within the appeal period, the Court may permit filing of the statutory appeal after expiry of the appeal period subject to conditions (here, time limit and pre-deposit), and such appeal shall be decided on merits. Conclusion: The petitioner was permitted to file the appeal by the specified date with requisite pre-deposit; the appeal, if so filed, will be heard on merits and not dismissed as time-barred. Ancillary procedural holdings and directions 1. The application for interim relief (CM) was allowed subject to exceptions and disposed. 2. The writ petition was disposed by the direction to file the statutory appeal with pre-deposit; pending applications were disposed as well. Cross-reference: Issues 1 and 4 are interlinked - the Court's refusal to entertain writ relief on merits (Issue 1) is tied to its decision to permit a time-limited appeal filing (Issue 4) with pre-deposit.