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2025 (5) TMI 922 - HC - GSTMaintainability of petition - availability of alternative remedy - Levy of penalty u/s 74 read with Section 122(1) of the Central Goods and Services Tax Act 2017 - Availment of fake Input Tax Credit (ITC) without any supply of goods or services - HELD THAT - Considering the fact that the Petitioner s son has already availed of the appellate remedy under Section 107 of the CGST Act in respect of the same very impugned order dated 30th January 2025 this Court is of the opinion that the present writ petition ought not to be entertained especially considering the seriousness of allegations against the Petitioner. It is well settled in various decisions of the Supreme Court that petitions under Article 226 of the Constitution of India would be liable to be entertained only in case of persons who come with clean hands and not in favour of the persons who present twisted facts or misrepresent the true and correct picture on record. Under these circumstances this Court is of the view that the present writ petition is not liable to be entertained. If the Petitioner wishes to urge any other issues the same can be considered in the appeal if the Petitioner chooses to avail of the appellate remedy under Section 107 of the CGST Act. The present petition is accordingly dismissed with costs of Rs. 50, 000/- to be deposited with the Delhi High Court Bar Association within four weeks.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability of the Petitioner to Penalty under CGST Act despite not being a taxable person Relevant legal framework and precedents: Sections 74 and 122(1) of the CGST Act provide for penalty imposition in cases of fraudulent availment of ITC. Section 122(3) caps penalty in certain cases. Section 16 defines the scope of ITC. The Court also referred to the principle that only taxable persons can be penalized under certain provisions. Court's interpretation and reasoning: The Court noted that the Petitioner was alleged to be a mastermind behind the establishment of multiple firms to fraudulently avail ITC without supply of goods or services. The Petitioner's proprietary firm was involved in the transactions, and the nexus between the Petitioner and other entities was established in the impugned order. The Court observed that the Petitioner's contention of not being an authorized signatory of the main firm availing ITC was insufficient to absolve him of liability, given the serious allegations and evidence of involvement. Key evidence and findings: The Department's investigation revealed incorporation of 28 firms, statements of associated persons, and detailed document analysis pointing to the Petitioner and his son as masterminds. The Petitioner's proprietary concern was also involved in the chain. Application of law to facts: The Court held that the penalty imposition under Sections 74 and 122 was justified given the Petitioner's involvement, and the Petitioner could not escape liability merely on technical grounds of not being an authorized signatory. Treatment of competing arguments: The Petitioner argued limited penalty under Section 122(3) and non-taxable status, but the Court found these arguments insufficient in light of the factual matrix and the Department's findings. Conclusion: The Petitioner was liable to penalty under the CGST Act for fraudulent ITC availment despite his contentions. Issue 2: Applicability of Section 75(13) of the CGST Act and limitation on penalty imposition Relevant legal framework: Section 75(13) bars imposition of penalty for the same act or omission under different provisions. Court's reasoning: The Court acknowledged the Petitioner's argument that penalty under Section 73 or 74 precludes penalty under other provisions for the same act. However, the Court observed that the impugned order was detailed and based on extensive investigation, and the Petitioner's proprietary firm was separately assessed. The Court did not find merit in the Petitioner's contention that penalty should be limited to the proprietary concern's ITC amount alone. Application to facts: The penalty was imposed on multiple firms and individuals involved in the fraudulent scheme, not solely on the Petitioner's firm. The Court held that the Department's approach was justified given the collective involvement. Conclusion: The penalty imposition was not contrary to Section 75(13) as the acts and omissions involved multiple entities and persons in a connected scheme. Issue 3: Maintainability of writ petition under Article 226 challenging the impugned order Relevant legal framework and precedents: Article 226 confers extraordinary writ jurisdiction. The Court referred to settled principles that writ jurisdiction is discretionary and should not be exercised to support unscrupulous litigants or where alternative statutory remedies exist. Precedents cited include K.D. Sharma v. SAIL, Ramjas Foundation v. Union of India, and Prestige Lights Ltd. v. SBI, emphasizing the "clean hands" doctrine and the need for candid disclosure of facts. Court's interpretation and reasoning: The Court noted that the impugned order was appealable under Section 107 of the CGST Act and that the Petitioner's son had already filed an appeal challenging the same order. The Court emphasized that complex factual issues and allegations of fraud require detailed factual adjudication, unsuitable for writ jurisdiction. The Court also highlighted that the Petitioner had not demonstrated any arbitrary action, lack of jurisdiction, or breach of natural justice by the Department. Key evidence and findings: The Department's detailed investigation, the opportunity given to the Petitioner for reply and hearing, and the availability of appellate remedy were noted. The Petitioner's failure to come with clean hands was underscored. Application of law to facts: The Court concluded that the writ petition was not maintainable, as the Petitioner had alternative statutory remedies and had not established grounds warranting exercise of extraordinary writ jurisdiction. Treatment of competing arguments: The Petitioner relied on precedents allowing writ jurisdiction in cases of arbitrary or jurisdictional errors, but the Court found no such grounds present. Conclusion: The writ petition was dismissed for non-maintainability, and the Petitioner was directed to pursue statutory appeal if desired. Issue 4: The principle of "clean hands" and candor in writ jurisdiction Relevant legal framework and precedents: The Court extensively relied on Supreme Court precedents emphasizing that petitioners invoking writ jurisdiction must come with clean hands, disclose all material facts candidly, and not suppress or distort facts. Court's reasoning: The Court observed that the Petitioner was involved in a complex fraudulent scheme and had not presented a truthful and complete picture. It held that writ jurisdiction would not be extended to shield such litigants. Application to facts: Given the serious allegations and evidence against the Petitioner, the Court found that he did not meet the threshold of clean hands required for relief under Article 226. Conclusion: The principle barred the Petitioner from obtaining relief under writ jurisdiction. 3. SIGNIFICANT HOLDINGS "The allegations against the Petitioner in the impugned order are extremely serious in nature. They reveal the complex maze of transactions, which are alleged to have been carried out between various non-existent firms for the sake of enabling fraudulent availment of the ITC." "The entire concept of Input Tax Credit, as recognized 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 said facility... is a major feature of the GST regime, which is business friendly and is meant to enable ease of doing business." "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." "It is well settled in various decisions of the Supreme Court that petitions under Article 226 of the Constitution of India would be liable to be entertained only in case of persons who come with clean hands and not in favour of the persons who present twisted facts or misrepresent the true and correct picture on record." "The jurisdiction of the Supreme Court under Article 32 and of the High Court under Article 226 of the Constitution is extraordinary, equitable and discretionary... the petitioner must come with clean hands, put forward all the facts before the court without concealing or suppressing anything and seek an appropriate relief." Final determinations on each issue:
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