CA and Trader Faces GST SCN for Alleged Ties with Fake Firms: Delhi HC Refuses Stay Adjudication [Read Order]

In a recent decision, the Delhi High Court declined to interfere in ongoing adjudication proceedings initiated by the GST ( Goods and Services Tax ) Department against a Chartered Accountant and co-petitioner, a trader for engaging in the dealings with bogus firms.

“In writ jurisdiction, the Court cannot go into the veracity of the statements of the Petitioners which have been recorded by the Department and examine as to whether the same are true or false as the same would be a matter of adjudication,” observed Justices Prathiba M. Singh and Rajneesh Kumar Gupta.

The petition was filed under Article 226 of the Constitution of India challenging the Show Cause Notice (SCN) dated 2nd August 2023 and seeking a stay on further proceedings. The SCN pertains to allegations of involvement in business dealings linked to fake firms.

Also read: GST Fraud Crackdown: Over 25,000 Fake Firms Illegally Claimed ₹61,545 Cr ITC in FY25

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This was the second petition filed by the same petitioners. Their earlier writ petition (W.P. (C) No. 15766/2023) was disposed of on 7th December 2023 with directions to the GST authorities to issue the required forms, FORM GST DRC-01 and DRC-02, which were subsequently issued on 26th September 2023 and allegedly served on 7th December 2023.

The petitioners raised two key grievances: first, that FORM GST DRC-01 was not issued in accordance with law; and second, that the SCN failed to quantify the tax or penalty specifically against either petitioner.

It was also brought to the Court’s attention that disciplinary proceedings had been initiated against CA Sulender Shah by the Institute of Chartered Accountants of India (ICAI), based on the same SCN.

The SCN alleges that the petitioners had engaged in transactions with two individuals, Shubham Gupta and Vikas Gupta, who were allegedly operating multiple fake firms. In their recorded statements, both petitioners admitted to limited associations with these individuals but denied any direct role in the creation or management of fake entities.

Also read: Madras HC orders CBCID Probe into Fake Law Firm Run by Non-Lawyer [Read Order]

Mr. Shah asserted that he had no personal or professional ties with Shubham Gupta and was linked only through his services to a fintech firm, while Mr. Aggarwal claimed he merely connected Shubham Gupta with potential clients and was unaware of any fraudulent activities.

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Considering the seriousness of the allegations and the fact that both petitioners had been arrested during the investigation, they declined to interfere with the adjudication as it is ongoing. It stated that the SCN, supported by FORM GST DRC-01 and DRC-02, sufficiently conveyed the nature of the allegations and the amount involved.

It ruled that the argument concerning non-compliance with procedural formats was insufficient to warrant judicial interference at the pre-adjudication stage, particularly when the SCN itself detailed the allegations and the role of each party involved.

Accordingly, the High Court disposed of the writ petition and directed that the adjudication proceedings in respect of the Show Cause Notice continue in accordance with law.

Also read: DGGI Uncovers ₹3,200 Crore GST Fraud in Bengaluru: Bogus Firms, Fake Invoices, and Stock Market Manipulation

To Read the full text of the Order CLICK HERE

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