2025 (12) TMI 439 - HC - GST

Writ against fraudulent ITC proceedings rejected as non-maintainable due to alternative remedy under Section 107 CGST Act

VSA TRADING PVT LTD Versus PRINCIPAL COMMISSIONER CGST AND ANR

The HC dismissed the writ petition challenging proceedings regarding alleged fraudulent availment of ITC, holding it non-maintainable in view of the ... Maintainability of petition - availability of alternative remedy - fraudulent availment of Input Tax Credit - absence of proper opportunity of hearing - violation of principles of natural justice - 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] held that '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. As a matter of fact, the High Court has while doing this exercise proceeded on the basis of surmises. However, since we are inclined to relegate the respondent to the pursuit of the alternate statutory remedy under Section 107, this Court makes no observation on the merits of the case of the respondent.' In matters of this nature, where there are a large number of notices who are connected to each other, the SCN has been properly uploaded on the portal and no satisfactory reply is filed by the Petitioner, the Court shall not interfere. Even according to Mr. S.B. Sharma, ld. Counsel, the Petitioner had written a letter to the Department seeking certain documents - Under such circumstances, there is no reason as to why this Court should adopt a different approach in the present case. Accordingly, following the decision in Toshniwal Electricals Pvt Ltd [2025 (11) TMI 240 - DELHI HIGH COURT] the Petitioner is also relegated to avail of the appellate remedy under Section 107 of the Central Goods and Service Tax Act, 2017, in accordance with law. The petition is disposed of. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether a writ petition under Article 226 challenging an order-in-original involving alleged fraudulent availment of Input Tax Credit is maintainable in the presence of an efficacious statutory appellate remedy under Section 107 of the Central Goods and Services Tax Act, 2017. 1.2 Whether there was a violation of the principles of natural justice on account of alleged non-grant of proper hearing and a typographical error in the due date for filing reply in the show cause notice. 1.3 Whether directions are warranted to the tax administration to exercise greater caution in recording material particulars such as financial years and due dates in show cause notices and orders. --- 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of writ petition in presence of appellate remedy under Section 107 CGST Act in fraudulent ITC matters Legal framework (as discussed) 2.1 The Court referred to Section 107 of the Central Goods and Services Tax Act, 2017 providing a statutory appellate remedy against orders-in-original. 2.2 The Court relied on the principles laid down by the Supreme Court in 'The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited' on when writ jurisdiction under Article 226 may be exercised despite an alternate remedy, viz., only in exceptional circumstances involving: (i) breach of fundamental rights; (ii) violation of principles of natural justice; (iii) excess of jurisdiction; or (iv) challenge to vires of statute/delegated legislation. Interpretation and reasoning 2.3 The Court noted that the impugned order arises from an investigation into large-scale fraudulent availment of Input Tax Credit, involving 16 taxpayers, 79 allegedly fake entities, 1155 recipients and transfer of ITC exceeding Rs. 122 crores, with the petitioner being one of the noticees and saddled with liability in the impugned order. 2.4 The Court reiterated its consistent view that in matters involving fraudulent availment of ITC, writ jurisdiction ought not ordinarily to be exercised, since such cases involve complex, interlinked transactions, voluminous evidence and detailed factual determinations, which are more appropriately examined by the statutory appellate authority. 2.5 The Court emphasized the systemic impact and burden on the exchequer of fraudulent ITC claims, observing that misuse of the Input Tax Credit mechanism under Section 16 CGST Act, if unchecked, would create a serious dent in the GST regime. 2.6 The Court relied on its earlier decisions in similar ITC fraud matters (including those in Mukesh Kumar Garg, Sheetal and Sons, MHJ Metal Techs and Toshniwal Electricals) where petitioners were relegated to the appellate remedy under Section 107, noting that such approach had been accepted by the Supreme Court (which only extended time to file appeal in the MHJ Metal Techs matter). 2.7 The Court found that the impugned order is a detailed, appealable order; no case was made out of any of the exceptional grounds (breach of fundamental rights, violation of natural justice, excess of jurisdiction, or challenge to vires) that alone could justify bypassing the appellate remedy. 2.8 The Court also observed that entertaining writ petitions in such fact-intensive ITC fraud matters could result in multiplicity of proceedings and potentially contradictory findings across forums. Conclusions 2.9 The writ petition was held not maintainable in view of the efficacious statutory remedy under Section 107 CGST Act, particularly considering the nature of the allegations of fraudulent ITC and the need for factual adjudication by the appellate authority. 2.10 The petitioner was relegated to avail the appellate remedy under Section 107 of the CGST Act, with liberty to file appeal by a specified outer date along with requisite pre-deposit, and with a direction that if so filed, the appeal shall be entertained on merits and not dismissed on limitation. --- Issue 2 - Alleged violation of natural justice due to lack of hearing and typographical error in due date Interpretation and reasoning 2.11 The petitioner contended that no proper hearing was afforded and that there was a typographical error in the show cause notice specifying the due date for reply as 28th August 2025 instead of 28th August 2024, asserting violation of principles of natural justice. 2.12 The Court noted that even if the erroneously printed date (28th August 2025) is taken at face value, there is nothing on record to show that the petitioner ever filed any reply to the show cause notice. 2.13 The Court held that the typographical error in mentioning the due date was 'merely an error' which could not be taken advantage of by the petitioner's counsel, especially in the absence of any substantive reply on record. 2.14 The Court observed that the show cause notice had been properly uploaded on the portal and that, even as per the petitioner's own showing, they had written to the Department seeking certain documents, which indicates knowledge of proceedings and opportunity to participate. 2.15 The Court, while relying on the Supreme Court's formulation in Commercial Steel, found that the facts of the case do not disclose a real violation of principles of natural justice that would justify exercise of writ jurisdiction in the face of an alternative remedy. Conclusions 2.16 The Court rejected the plea of violation of natural justice, holding that neither the alleged lack of hearing nor the typographical error in the due date for filing reply constituted sufficient ground to bypass the statutory appellate remedy under Section 107 CGST Act. 2.17 The petitioner was directed to raise all factual and legal contentions, including those relating to alleged procedural deficiencies, before the appellate authority. --- Issue 3 - Directions to tax administration on accuracy in show cause notices and orders Interpretation and reasoning 2.18 While holding against the petitioner on maintainability and natural justice, the Court noted the existence of errors such as incorrect financial years and due dates for replies in show cause notices and orders, and considered it appropriate to address systemic concerns. 2.19 The Court 'advised' the CGST Department to exercise caution in future while mentioning financial years, due dates for replies and other material particulars to avoid recurrence of such errors, especially in high-stake and large-scale proceedings. 2.20 The Court directed that a copy of the order be communicated to the Chief Commissioner of Central Tax, CGST, Delhi Zone, for information and compliance, and that the order be circulated to all Commissionerates highlighting that there are many errors in orders and show cause notices, so that they may be properly supervised and rectified. Conclusions 2.21 The Court issued administrative directions to the tax administration to improve accuracy and supervision in issuance of show cause notices and orders, without granting any substantive relief to the petitioner on that ground.