2025 (11) TMI 241 - HC - GST

Petition dismissed; GST registration cancelled effective 30 June 2025 for fraudulent input tax credit, misrepresentation, and sham evidence

HC dismissed the petition and upheld cancellation of GST registration effective 30 June 2025 for fraudulent availment of input tax credit. The court found ... Cancellation of Goods and Services Tax (GST) registration with effect from 30th June, 2025 - fraudulent availment of Input Tax Credit - HELD THAT:- The Petitioner has completely misled the Court about the nature of his business. The entire attempt appears to have been to somehow escape the further legal action by the Department in respect of ITC which is stated to have been availed of from fraudulent entities. The Petitioner has also attempted to completely misrepresent the status of his shop by hanging a board only for the purpose of taking a video. Such conduct cannot be condoned by the Court. The Court is not inclined to entertain the present petition. In fact, severe action is liable to be taken against the Petitioner. However, since the Department has already issued notices for further action, the Court is refraining from doing so. The petition is dismissed with costs of Rs. 5,00,000/- being imposed upon the Petitioner. Petition dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a petition seeking cancellation of GST registration can be entertained where the return and affidavit evidence indicate substantial turnover and large Input Tax Credit (ITC) claims but no cash tax payment, raising suspicion of fraudulent ITC availing. 2. Whether material produced by the petitioner (affidavit, videography, landlord certificate) and a field visit report showing non-existence of the business premises amount to misleading the Court and justify dismissal of the petition. 3. Whether the Court should refrain from imposing other penal consequences where tax department proceedings and fresh notices are in progress, and what monetary costs or directions are appropriate in such circumstances. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entertaining petition for cancellation of GST registration in face of substantial turnover and large ITC with no cash tax payment Legal framework: Under the GST regime, registered persons are required to file returns, pay tax in cash where applicable, and are liable for scrutiny where ITC claims are suspicious; cancellation of registration may be applied for but is subject to verification by the tax authority. Precedent treatment: No prior authorities were relied upon or applied by the Court in the judgment; the Court proceeded on statutory scheme and factual matrix. Interpretation and reasoning: The petitioner's affidavit claimed turnover of Rs.5,95,19,520 and ITC availed of Rs.1,07,13,514 with zero cash deposit; returns claimed 'NIL' for periods despite the asserted turnover. The Court treated these factual assertions as prima facie inconsistent and sufficient to raise serious suspicion of fraudulent availing of ITC from fictitious or fraudulent suppliers. The respondent's counsel drew attention to the unusually large turnover in a short period and absence of cash tax payment, strengthening the inference of impropriety. The Court directed production of returns and an affidavit to ascertain the position - which the petitioner provided but did not dispel the inconsistency. Ratio vs. Obiter: Ratio - where a registered person's own filings and submissions (large turnover, large ITC, NIL cash payment/returns) are materially inconsistent, the Court will not entertain an application for cancellation of registration that appears to be a vehicle to evade departmental inquiry; such material warrants denial of relief and referral to the tax authority for investigation. Obiter - general observations on GST fraud and ITC misuse as a pervasive concern. Conclusions: The petition could not be entertained on merits given the petitioner's own averments and surrounding facts establishing strong suspicion of fraudulent ITC claims; the Court declined to grant the relief sought. Issue 2 - Misleading the Court by fabrication of evidence and non-existence of business premises Legal framework: Courts require candour from litigants; knowingly misleading the Court or producing fabricated evidence attracts adverse consequences and may be grounds for dismissal and costs. Administrative/inspection reports (field visit reports) are relevant material for assessing factual claims about existence of business premises and bona fides. Precedent treatment: No authorities cited; the Court applied settled principles of candour and reliance on objective inspection reports. Interpretation and reasoning: The GST Department's field visit report indicated non-existence/non-functioning of the firm at the stated address; local inquiries and contact attempts failed. The petitioner produced a video and landlord certificate purporting to show presence of the business, but factual interrogation revealed the board was put up the day before the hearing and the landlord's certificate stated the premises were vacated earlier. The Court found the video and newly installed board to be manufactured evidence aimed at misleading inspectors and the Court. This conduct demonstrated deliberate misrepresentation to evade departmental action regarding ITC claims. Ratio vs. Obiter: Ratio - fabrication or staging of evidence to mislead inspection/inspection reports and the Court is a proper basis for dismissal and imposition of costs. Obiter - remarks expressing the Court's disapprobation of such conduct and suggestion that severe departmental action may follow. Conclusions: The petitioner knowingly misled the Court and the Department; the petition was dismissed on that ground and significant costs were imposed as a consequence. Issue 3 - Appropriate relief and costs where departmental proceedings are pending Legal framework: Courts may decline to pre-empt or intervene where the administrative authority has initiated or is competent to initiate fact-finding and recovery proceedings under tax law; courts have power to impose costs for abuse of process or misleading conduct but may refrain from imposing additional penal orders where the tax authority is actively investigating. Precedent treatment: No specific precedents were cited; the Court followed the principle of non-interference with ongoing departmental action while exercising its powers to punish procedural impropriety by costs. Interpretation and reasoning: The Court noted that fresh departmental notices had been issued and that the petitioner was directed to appear before the Department. Given active departmental proceedings, the Court refrained from imposing further penal consequences (criminal or quasi-criminal sanctions) and left substantive tax and recovery issues to the Department. However, because of the petitioner's deliberate misleading conduct, the Court considered it necessary to impose substantial costs to mark its disapproval and to deter similar conduct. The method and apportionment of costs were specified for prompt payment and confirmation by the Department. Ratio vs. Obiter: Ratio - where a litigant misleads the Court but the relevant administrative authority is investigating, the Court may decline to supplant the authority's proceedings while nevertheless dismissing the petition and imposing costs; the imposition of costs is a legitimate exercise to penalize abuse and deter misconduct. Obiter - expressions that 'severe action is liable' but was not undertaken because of ongoing departmental notices. Conclusions: The petition was dismissed; the Court imposed substantial costs totaling Rs.5,00,000 to be paid in specified tranches/recipients within two weeks, and directed that the GST Department confirm receipt. The Court left substantive tax enforcement and any further penal action to the Department in view of its ongoing notices and proceedings. Cross-references and ancillary conclusions 1. The finding of suspected fraudulent ITC availing and the staging of evidence are interlinked: the Court relied on both the documentary/return inconsistencies and the field visit/video evidence to reach its conclusions (see analysis under Issues 1 and 2). 2. The Court's dismissal and cost order are dispositive of the petition; pending applications were disposed of. Any further consequences (recovery, penal action) were left to the statutory authority given that fresh notices have been issued and the authority is seized of the matter (see analysis under Issue 3).