[Breaking] Delhi HC Flags Pattern of Misusing Writs to Escape GST Fraud Penalties, Slaps ₹1 Lakh Cost [Read Order]

In a recent ruling, the Delhi High Court pointed out a growing trend of businesses involved in GST fraud invoking writ jurisdiction to avoid penalty proceedings. The court imposed a cost of Rs. 1 lakh on the petitioner for misusing the legal process and attempting to bypass statutory remedies.

Mahesh Fabrinox Pvt. Ltd. approached the Delhi High Court under Article 226 of the Constitution, challenging an Order-in-Original dated 1st February 2025 issued by the Additional Commissioner, CGST. The order had raised a demand for Rs. 2.62 crore on the grounds of fraudulent availment of Input Tax Credit (ITC) based on invoices issued without actual supply of goods.

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The department alleged that the petitioner was one of the firms used by Mr. Karan Kumar Agarwal, who had created a network of fictitious entities for generating goods-less invoices in exchange for commissions.

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The petitioner’s counsel argued that no personal hearing was granted before the order was passed and claimed that their business had not even commenced operations in FY 2017-18, the period in question. They submitted that any alleged purchases or ITC claims were baseless, as the company was still setting up its manufacturing unit during that time.

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The department counsel presented a statement by the petitioner company's director, Mr. Vishu Goyal, recorded during an earlier summons proceeding. In this statement, Mr. Goyal allegedly admitted to having accepted goods-less invoices from Mr. Agarwal for a 6% commission on the tax value. The department also submitted a screenshot from the GST portal to show that no reply had been uploaded by the petitioner before the order was passed, although the petitioner insisted that a reply had been filed and a hearing had been requested.

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The single-judge bench comprising Justice Prathiba M. Singh observed that the stand taken in the petitioner’s reply was directly contradicted by the voluntary statement of its Director. The court took a serious view of the matter and observed a recurring pattern where entities engaged in fraudulent ITC claims were filing writ petitions on technical grounds instead of following the appellate process.

The court stated that such actions, if left unchecked, could damage the integrity of the GST system, which is designed to support compliant businesses. The court explained that there was no violation of natural justice or jurisdictional overreach by the department in this case and that the petitioner had not approached the Court with clean hands.

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The court dismissed the writ petition and imposed a cost of Rs. 1 lakh to be paid to the Delhi High Court Bar Association within two weeks. The court clarified that the petitioner was free to pursue any alternative remedies available under the law, including filing an appeal.

To Read the full text of the Order CLICK HERE

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