GST Registrant Exploits Systemic Gaps to Utilise Fake ITC: Rajasthan HC says Procedural Lapses Cannot Overshadow Fraud Committed [Read Order]

The Rajasthan High Court (Jaipur Bench) has dismissed a writ petition challenging the issuance of GST MOV-02 and subsequent detention of goods and the vehicle, finding that the transaction was embedded in a large-scale fraudulent ITC scheme involving fictitious suppliers, sham documentation and misuse of the GST electronic system.

The Court upheld the initiation of proceedings under Section 130 of the GST Act and imposed costs of ₹5,00,000 on the petitioner, observing that equitable jurisdiction under Article 226 cannot be invoked by parties seeking to secure advantage through contrived transactions.

The petitioner, Korfex Industries Private Limited, argued that the entire action of the Enforcement Wing was illegal from the outset, as the goods had already reached the destination on 29 July 2025, whereas MOV-02 was issued the next morning showing the vehicle as being “in transit.”

It was submitted that the officer forcibly removed the truck from the factory premises, transported it nearly 250 km to Jaipur without authority, and failed to comply with mandatory statutory requirements such as issuing MOV-03 for extension or MOV-06 for detention.

The petitioner relied on CCTV footage, GPS timestamps and weightment slips to show that the goods had arrived, and contended that the department’s failure to release the vehicle after expiry of the inspection period under Rule 138C vitiated the entire proceedings. It was further argued that the tax had been duly paid, all documents were valid, and the action constituted a mala fide fishing enquiry unsupported by any discrepancy in weight, rate or documentation.

Opposing the petition, the State submitted that the case was not a mere detention dispute but part of a sophisticated scheme in which the petitioner had colluded with a network of bogus entities across Delhi, Haryana, Punjab and Himachal Pradesh to unlawfully avail more than ₹100 crore of fake ITC.

The respondents stated that the petitioner had exploited gaps in the GST portal by routing invoices through non-existent, deregistered or suspended firms that falsely declared outward supplies without any real procurement.

According to the department, the transaction attracted confiscation under Section 130 due to deliberate contravention with intent to evade tax.

The Bench, comprising Justice Sanjeev PrakashSharma and Justice Sanjeet Purohit, noted procedural irregularities on part of the officers, including the absence of MOV-03 and the unexplained relocation of the vehicle to Jaipur. However, it held that such lapses could not overshadow the substantive discovery that the transaction originated from fictitious entities and involved a manipulated supply chain.

The Bench found that the petitioner had availed bogus credit through nearly forty-nine entities that were either non-existent or whose registrations had been cancelled, and that the petitioner had exploited systemic gaps to circulate and utilise fake ITC, thereby undermining the integrity of the GST.

Invoking the doctrine of clean hands, the Court held that discretionary relief cannot be granted to a litigant whose conduct reflects lack of bona fides. Relying on the Supreme Court’s decision in Tomorrowland Ltd. v. HUDCO (2025) 4 SCC 19, the Bench reiterated that equity cannot aid a party seeking illegitimate gain or attempting to use the judicial process to nullify lawful enforcement.

Concluding that the petitioner had orchestrated a fraudulent scheme and was not entitled to relief, the Court dismissed the writ petition with costs of ₹5,00,000 to be recovered from the petitioner-company through its Director, and permitted the authorities to continue proceedings under Section 130 and all other applicable provisions of the GST Act.

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