Pre-SCN Consultation Notice Not Mandatory Post-2020 GST ITC Fraud Cases: Delhi HC Notes Rule 142(1A) Amendment bars Such Objections [Read Order]

The Delhi High Court has held that a pre-show cause notice (pre-SCN) consultation is not mandatory in cases of alleged fake Input Tax Credit (ITC) under Goods and Services Tax ( GST ), especially after the 2020 amendment to Rule 142(1A) of the CGST Rules which changed the word "shall" to "may".

The bench of Pratibha M. Singh and Justice Renu Bhatnagar, while disposing a writ petition observed that “In the prima facie opinion of the Court such a notice would be having some bearing, only when certain simple transactions are noted. In such complex maze of transactions involving multiple parties, worth crores of rupees, pre-consultation would be meaningless due to the nature of the issues involved.”

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The petition was filed by Manpar Exim Inc., which challenged a tax demand under Section 74 relating to alleged fraudulent availment and passing on of ITC exceeding ₹9.60 crore. According to the Order-in-Original dated 22 October 2025, the Department detailed wide searches and transactions linked to the petitioner’s partner, Mr. Parag Garg, who was allegedly involved in creating multiple non-existent firms for the purpose of ITC fraud.

Adv. Chinmaya Seth, Adv. A.K. Seth, Adv. Palak Mathur, counsels for the petitioner argued before the Court that the absence of a pre-SCN consultation, as required earlier under Rule 142(1A), rendered both the SCN dated 12 March 2025 and the final order invalid. It also questioned the constitutional validity of Notification No. 79/2020-Central Tax dated 15 October 2020, by which the mandatory requirement for pre-SCN consultation was diluted.

The Court rejected this argument, noting that since the SCN in the present case was issued after the notification came into effect, the amended rule applied, and therefore consultation was not compulsory.

The court, noting the text of amended Rule 142(1A), observed that the proper officer “may” communicate details prior to issuing a notice, and this permissive wording removes any mandatory obligation.

The Court also depended on its earlier decisions, including Gulati Enterprises vs CBIC and Banson Enterprises.

In Gulati Enterprises, the Court held that since the SCN therein was prior to the amendment, the issuance of the pre-SCN consultation notice was mandatory. Before 2020, the wording of the Rule 142(1A) was ‘the proper officer shall’ and after amendment it changed to ‘proper officer may’. Thus, in this case, the court took the decision in favour of mandatory issuance of Pre-SCN Consultation notice. This judgement brought out the distinction pre-and post-amendment.

However, in the Banson Enterprises case, the court took an opposite view, where it was held that “It is noticed that after the change, which has been brought about, the issuance of pre-SCN consultation notice would not be mandatory.”

The division bench, noting all the precedents, said that in complex ITC fraud cases involving multiple entities and large-scale irregularities, pre-consultation serves little purpose and cannot be insisted upon further.

The Court further noted that challenges to the Notification No. 79/2020-Central Tax dated 15 October 2020 itself are already pending, and any eventual ruling in those matters will automatically guide subsequent appellate proceedings. It also recorded that the petitioner had already deposited ₹1.66 crore during investigation, which could be treated as a pre-deposit for appealing under Section 107 of the CGST Act.

Accordingly, the writ was disposed of as there was no grounds to interfere under Article226. It permitted the petitioner to pursue the statutory appellate remedy since the limitation period had not expired. The Court clarified that none of its observations would prejudice the merits of the case.

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