2025 (12) TMI 204 - HC - GST

Writ Remedy Denied in Alleged Fraudulent ITC Case; Petitioner Directed to Appeal Under Section 107 CGST Act

HC declined to exercise writ jurisdiction in a dispute involving alleged fraudulent availment of ITC. It held that such matters typically involve complex ... Violation of principles of natural justice - no personal hearing was granted to the Petitioner - fraudulent availment of Input Tax Credit - HELD THAT:- This Court has consistently taken the view that in cases involving fraudulent availment of ITC, ordinarily, the Court would not be inclined to exercise its writ jurisdiction. It is routinely seen in such cases that there are complex transactions involved which require factual analysis and consideration of voluminous evidence, as also the detailed orders passed after investigation by the Department. In such cases, it would be necessary to consider the burden on the exchequer as also the nature of impact on the GST regime, and balance the same against the interest of the Petitioners, which is secured by availing the right to statutory appeal. It would be apposite to refer to some of the cases which have been decided by the Supreme Court as also by this Court on these aspects. The Supreme Court in the context of Central Goods and Service Tax Act, 2017, has, in The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited [2021 (9) TMI 480 - SUPREME COURT], has held that 'In the present case, none of the above exceptions was established. There was, in fact, no violation of the principles of natural justice since a notice was served on the person in charge of the conveyance. In this backdrop, it was not appropriate for the High Court to entertain a writ petition. The assessment of facts would have to be carried out by the appellate authority.' In the present case, the Petitioner was well aware of the notices, which were issued and the reply was duly filed by the Petitioner. This Court is inclined to follow the same view as taken in Toshniwal Electricals [2025 (11) TMI 240 - DELHI HIGH COURT] in respect of the same impugned order. Accordingly, the Court is not inclined to entertain the present writ petition. The Petitioner is permitted to avail of appellate remedy under Section 107 of the Central Goods and Service Tax Act, 2017. The appeal may be filed by the Petitioner by 5th January, 2026 along with the requisite pre-deposit. If the same is filed by the said date, the appeal shall be entertained on merits and shall not be dismissed being barred by limitation. Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the writ petition under Article 226 challenging an order-in-original raising GST demand for alleged fraudulent availment of Input Tax Credit is maintainable in view of the statutory appellate remedy under Section 107 of the CGST Act. 1.2 Whether there was any violation of principles of natural justice in passing the impugned order, specifically on the grounds of alleged denial of personal hearing and non-consideration of the petitioner's written reply. 1.3 Whether, in the facts of the case, the petitioner should be relegated to the statutory appellate remedy with appropriate directions regarding limitation and pre-deposit, and whether previously imposed costs were liable to be waived. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Maintainability of writ petition in presence of statutory appeal under Section 107 of the CGST Act in cases of alleged fraudulent ITC Legal framework (as discussed) 2.1.1 The Court referred to the decision of the Supreme Court in 'The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited', wherein it was held that although the existence of an alternate remedy is not an absolute bar to a writ petition under Article 226, such jurisdiction should be exercised only in exceptional circumstances such as: (i) breach of fundamental rights; (ii) violation of principles of natural justice; (iii) excess of jurisdiction; or (iv) challenge to vires of statute or delegated legislation. 2.1.2 The Court also relied on its own earlier decisions in matters involving fraudulent availment of ITC, including Mukesh Kumar Garg, M/s Sheetal and Sons, and M/s MHJ Metal Techs, wherein it had consistently held that in such cases, considering the burden on the exchequer, impact on the GST regime, complexity and factual nature of the disputes, writ jurisdiction ought not to be exercised and parties should be relegated to the remedy of appeal under Section 107 of the CGST Act. Interpretation and reasoning 2.1.3 The Court noted that the matter arises out of serious allegations of fraudulent availment of ITC involving multiple non-existent firms, large-scale transfer of ITC, and complex transactional chains, similar to matters previously considered by the Court. 2.1.4 The Court reiterated its settled view that disputes relating to fraudulent ITC involve complex factual analysis, examination of voluminous evidence and detailed findings of the tax authorities, which are not suitable for adjudication in writ proceedings. 2.1.5 The Court emphasized that in such ITC fraud cases, a balance has to be drawn between the burden on the public exchequer and the impact on the GST regime on one hand, and the interests of the taxpayers on the other, which are adequately safeguarded by the statutory appellate mechanism under Section 107. 2.1.6 The Court observed that it had already considered a writ petition challenging the very same impugned order in another matter and, following its earlier view, had relegated the petitioner therein to the appellate remedy. It considered it appropriate to follow the same approach in the present case, arising from the same adjudication. Conclusions 2.1.7 The Court held that this was not a fit case for exercise of extraordinary writ jurisdiction under Article 226, given the serious allegations of fraudulent ITC, the complex factual matrix, and the existence of an effective alternative remedy of appeal under Section 107 of the CGST Act. 2.1.8 The writ petition was held to be not entertainable on the ground of availability of a statutory appellate remedy, and the petitioner was relegated to pursue such remedy. 2.2 Alleged violation of principles of natural justice in passing the impugned order Interpretation and reasoning 2.2.1 The petitioner contended that no personal hearing was granted and that its reply dated 5 August 2024 was not considered in the impugned order, thereby alleging violation of principles of natural justice. 2.2.2 The respondents refuted this and pointed out that the impugned order itself records the filing of the reply and indicates that it was considered while passing the detailed order. 2.2.3 The Court noted that the petitioner was well aware of the notices issued and that a reply had in fact been filed by the petitioner, which is recorded in the impugned order. 2.2.4 The Court, in line with its approach in analogous matters, did not undertake a detailed factual inquiry into the nature or adequacy of hearing or the extent of consideration of the reply, holding that such issues are best examined by the appellate authority in statutory appeal proceedings. Conclusions 2.2.5 The Court did not find sufficient grounds to hold that there was a violation of principles of natural justice warranting interference under Article 226, especially in the face of an available statutory appeal. 2.2.6 The Court concluded that any grievance relating to the extent of hearing or consideration of the reply may be appropriately urged before the appellate authority. 2.3 Direction to avail appellate remedy; extension of limitation and waiver of earlier costs Interpretation and reasoning 2.3.1 Following its consistent practice in similar ITC fraud cases, the Court, while declining to entertain the writ, considered it appropriate to safeguard the petitioner's right to appeal by granting specific time to file an appeal under Section 107 along with pre-deposit. 2.3.2 The Court directed that if the appeal is filed by the stipulated date along with the requisite pre-deposit, the appellate authority shall adjudicate the appeal on merits and shall not dismiss it on the ground of limitation. 2.3.3 Considering the reasons set out in the interlocutory application, the Court also waived the costs that had earlier been imposed on the petitioner by a prior order. 2.3.4 The Court clarified that any observations made in the order would not affect the merits of the matter before the appellate authority. Conclusions 2.3.5 The Court disposed of the writ petition by relegating the petitioner to the appellate remedy under Section 107 of the CGST Act, granting time up to 5 January 2026 to file the appeal with pre-deposit, directing that such appeal not be rejected as time-barred if so filed, and waiving the previously imposed costs.