[BREAKING] “Massive Fraudulent Availment of the ITC”: Delhi HC upholds Penalty against GST Consultant in Rs. 285 Cr Fake ITC Scam [Read Order]

The brief background of the case is that the Petitioner is a GST consultant against whom a Show Cause Notice (SCN) was issued on 8th March, 2024 by the Directorate General of Goods and Service Tax Intelligence, Ghaziabad Regional Unit (DGGI) along with three other individuals namely Sh. Naveen Monga, Sh. Anoop Kumar and Sh. Sanjay Sehgal.

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The allegations in the SCN were that 44 fake firms were created and operated by Sh. Sanjay Sehgal and his associates. The Petitioner was one of the consultants engaged by Sh. Sanjay Sehgal who enabled the creation of the said firms. Initially the investigation was started on the ground that there were 44fakefirms but thereafter, when investigation was conducted, it was realized that there were 63 fake firms, out of which 54 firms were used for fraudulent availment and passing on of input tax credit.

The submission on behalf of the Petitioner is that in so far as the Petitioner is concerned, the only notice to show cause was issued under Section 122(3)(a), (d) & (e) of the Central Goods and Service Tax Act, 2017 (hereinafter, ‘CGST Act’). The Petitioner’s statement was also recorded prior to the issuance of the SCN. It is not in dispute that the Petitioner did not reply to the said SCN.

The Counsel for the Petitioner raises the following two grounds in the present petition that no notice was issued under Section 122(1A) of the CGST Act and hence, no penalty could have been imposed under said provision till the twin conditions under Section 122(1A) of the CGST Act are not satisfied.

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That the Petitioner was merely a consultant and the mastermind of the alleged transactions was admittedly Sh. Sanjay Sehgal even as per the DGGI. Sh. Sanjay Sehgal has also admitted to this position in his statement.

Reliance was also placed upon Section 75(7) of the CGST Act to reaffirm the said submission.

On the other hand, Ms. Monica Benjamin, counsel for the Department submits that the SCN clearly supports the final findings in as much as in para19.4.1 of the SCN,the penalty under Section 122 of Act of the CGST Act has been contemplated and therefore, it cannot be argued that Section 122(1A) of the CGST Act has been incorrectly invoked.

She further submitted that the Petitioner, having chosen not to file any reply to controvert the position that he had attained any benefit from the alleged transactions, cannot now argue, after having stayed quiet, that the said findings have been arrived at by the Department in an incorrect manner.

The Bench of Justices Prathiba MSingh and Rajneesh Kumar Gupta noted that, “A perusal of the SCN reveals the malaise of availment of fraudulent ITC from and passing on of the same to non-existent firms and entities. A perusal of the SCN clearly contains all the allegations against the four individuals, including the Petitioner. The statement of the Petitioner was also recorded and the gist of the said statement is also set out in the said SCN.”

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It was strictly observed that, “Since the Petitioner has chosen not to rebut the allegations that he was benefitted from the transactions he cannot, today, seek to argue and he did not derive any benefit from the said transactions.”

It was thus held that, “The manner in which fraudulent ITC has been availed would also show that it was a continuous process and not a one time act of the parties involved. Under such circumstances Section 122(1A) of the CGST Act was clearly applicable.”

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