Delhi HC directs to appeal under CGST Act against Allegations of availment of fraudulent ITC [Read Order]

The Delhi High Court has directed the assessee to appeal under Section 107 of the Central Goods and Service Tax Act (CGST) 2017 against allegations of availment of fraudulent Input Tax Credit (ITC).

Standard Cartons Pvt Ltd, the petitioner, challenged the impugned order dated 31st January, 2025 ( ‘impugned order’) whereby a penalty has been imposed upon the Petitioner. The impugned order herein arises out of a show cause notice dated 2nd August, 2024 (‘SCN’) which was addressed to several noticees and allegations of fake availment of Input Tax Credit (ITC) were raised therein. 5. A perusal of the impugned order would show that the Petitioner is alleged to have received goods-less invoices from two firms, namely M/s. Shivaay Trading and Satyam Associates, which are firms stated to be belonging to Mrs. Aaurti Kapoor. The total availment of Input Tax Credit ( ‘ITC’) is alleged to be to the tune of Rs. 172 Crores through the fake and fraudulent firms and goods-less invoices.

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The impugned order further shows that there are 34 parties to whom SCN has been issued. In the impugned order itself, the allegation is that one Mrs. Aaurti Kapoor, who is connected to all these firms had passed on the ITC to various entities, such as the Petitioner.

The submission made today by the Counsel for Petitioner is that despite the directions for furnishing the Relied Upon Documents (‘RUDs’), the same were not furnished to the Petitioner until the filing of a contempt petition. It is further submitted that in the RUDs, the statement of one Mr. Vinod Pahwa would show that he does not have any connection with the Petitioner. Thus, there is no document which connects the Petitioner to Mr. Vinod Pahwa or to Mrs. Aaurti Kapoor. Counsel for the Petitioner, therefore, submitted that the order deserves to be quashed.

On the other hand, Counsel for the Respondent-Department has pointed out that the GSTR-1M of the various firms of Mrs. Aaurti Kapoor would show that the said firms had made outwards supplies by issuing mere invoices without any supply of goods, only to pass on the ITC.

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One such firm is M/s Satyam Associates which had raised an invoice on Standard Cartons Pvt. Ltd. at B-101, Okhla Industrial Area, Phase-1, Delhi-110020 for a taxable value of Rs.5,76,66,800/- with CGST of Rs.51,90,012 and SGST of Rs.51,90,012, totalling to Rs.1,03,80,024/-. It is noted that the address of the Petitioner is the same as in the memo of parties i.e., B-101, Okhla Industrial Area, Phase-1, Delhi-110020,

The grievance of the Petitioner is that despite the order dated 4th November, 2024, the RUDs were not supplied to the Petitioner and the same were furnished only on 14th May, 2025. The Petitioner has all along been aware of the proceedings before the Adjudicating Authority. The same SCN dated 2nd August, 2024 was challenged by one M/s SS Enterprises in petition being W.P.(C) 5684/2025 in which the Petitioner therein was relegated to avail of the appellate remedy in accordance with law.

The contentions that the petitioner wishes to raise can always be raised in appeal, inasmuch as the Court has already taken a view in W.P.(C) 5737/2025 titled Mukesh Kumar Garg vs. Union of India & Ors. that where cases involving fraudulent availment of ITC are concerned, considering the burden on the exchequer and the nature of impact on the GST regime, writ jurisdiction ought not to be ordinarily exercised in such cases.

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The entire concept of Input Tax Credit, recognised under Section 16 of the CGST Act is for enabling businesses to get input tax on the goods and services which are manufactured/supplied by them in the chain of business transactions. The same is meant as an incentive for businesses that need not pay taxes on the inputs, which have already been taxed at the source itself. The said facility, which was introduced under Section 16 of the CGST Act is a major feature of the GST regime, which is business-friendly and is meant to enable ease of doing business.

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It is observed by the Court in a large number of writ petitions that this facility under Section 16 of the CGST Act has been misused by various individuals, firms, entities and companies to avail of ITC even when the output tax is not deposited or when the entities or individuals who had to deposit the output tax are themselves found to be not existent. Such misuse, if permitted to continue, would create an enormous dent in the GST regime itself.

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The Petitioner and his other family members are alleged to have incorporated or floated various firms and businesses only for the purposes of availing ITC without there being any supply of goods or services. The impugned order in question dated 30th January, 2025, which is under challenge, is a detailed order which consists of various facts as per the Department, which resulted in the imposition of demands and penalties. The demands and penalties have been imposed on a large number of firms and individuals, who were connected in the entire maze and not just the Petitioner.

The impugned order is an appealable order under Section 107 of the CGST Act. One of the conoticees, who is also the son of the petitioner, i.e., Mr. Anuj Garg, has already appealed before the Appellate Authority. Moreover, when such transactions are entered into, a factual analysis would be required to be undertaken and the same cannot be decided in writ jurisdiction.

A division bench of Justice Prathiba M. Singh and Justice Rajneesh Kumar Gupta held that in exercise of its writ jurisdiction, cannot adjudicate upon or ascertain the factual aspects pertaining to what was the role played by the Petitioner, whether the penalty imposed is justified or not, whether the same requires to be reduced proportionately in terms of the invoices raised by the Petitioner under his firm or whether penalty is liable to be imposed under Section 122(1) and Section 122(3) of the CGST Act.

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The persons, who are involved in such transactions, cannot be allowed to try different remedies before different forums, inasmuch as the same would also result in multiplicity of litigation and could also lead to contradictory findings of different Forums, Tribunals and Courts. The Petitioner has further confirmed that the RUDs have now been received on 14th May, 2025. Considering the nature of this matter, which involves allegations of availment of fraudulent ITC, the Court is not inclined to entertain the writ petition.

The Petitioner is free to avail of its remedies under Section 107 of the Central Goods and Service Tax Act, 2017. If the Petitioner wishes to file an appeal, it may do so by 15th July, 2025 along with the requisite pre-deposit. Upon the said appeal being filed, it shall be adjudicated on the merits and shall not be dismissed as being barred by limitation. The Respondent-Department also undertakes that the rectified DRC-07 would be uploaded on the GST Portal within a period of one week.

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