2025 (5) TMI 2074 - HC - GST

Violation of principles of natural justice - notices of hearing were not served upon the Petitioner and the impugned Order-in-Original has been passed without hearing the Petitioner - HELD THAT - On a perusal of the said status report it is observed that a list of 73 cases has been attached which contains the details of other Show Cause Notices and orders issued by the State GST Authorities against the noticees of the SCN. Further the status report reveals that the entire investigation pertaining to this matter started when high value transactions were noticed in respect of four firms. In the case of Ramesh Wadhera v. Deputy Director (INT.) Directorate General of GST intelligence and others 2025 (2) TMI 247 - DELHI HIGH COURT the Court has clearly come to the conclusion that the Show Cause Notice does not deserve to be quashed. When the above order was passed the Petitioner had an opportunity to seek a hearing in the Show Cause Notice from the Court itself which the Petitioner did not do. The factum of non-service of notice in time of hearing was also not raised when the Court decided the matter on 29th January 2025. The nature of the allegations against the Petitioner are extremely serious. There are several co-noticees who have also been involved in illegal and fraudulent transactions. Any relief being granted to the Petitioner in exercise of writ jurisdiction would in effect give a premium to such firms who are involved in fraudulent availment of benefits under the GST Act. In view of the recent decision of this Court in Mukesh Kumar Garg v. Union of India Ors. 2025 (5) TMI 922 - DELHI HIGH COURT where similar grounds have been raised for challenge of the Show Cause Notice therein this Court held that writ jurisdiction ought not to be exercised in such cases. The Court in the said decision inter alia observed 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 the Petitioner is relegated to the remedy of filing an appeal under Section 107 of the CGST Act along with the requisite pre-deposit. Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the impugned Order-in-Original dated 4th February 2025, passed without personal hearing of the Petitioner, is valid and sustainable.
• Whether the notices of hearing issued to the Petitioner were duly served and whether the Petitioner was afforded an opportunity of hearing in accordance with principles of natural justice.
• Whether the Petitioner's challenge under Articles 226 and 227 of the Constitution of India is maintainable in the face of serious allegations of fraudulent availment of Input Tax Credit (ITC) through fictitious firms.
• The applicability of writ jurisdiction in cases involving allegations of tax fraud and whether the Petitioner, given his alleged involvement and past history, is entitled to relief under Articles 226 and 227.
• The evidentiary basis and findings regarding the Petitioner's role as a mastermind in the creation and operation of dummy firms for fraudulent ITC claims under the GST regime.
• The extent and nature of investigations conducted by the Directorate General of GST Intelligence (DGGI) and related authorities, and the consequences of such investigations on the impugned proceedings.
• The appropriate remedy available to the Petitioner, including the scope for filing an appeal under Section 107 of the CGST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Impugned Order-in-Original Passed Without Hearing

Relevant legal framework and precedents: Principles of natural justice mandate that a person against whom adverse action is proposed must be given a fair opportunity to be heard. The CGST Act and allied procedural laws require issuance of show cause notices and personal hearings before passing orders affecting rights. The Court also relied on established Supreme Court precedents emphasizing the necessity of candid disclosure and fair hearing in writ jurisdiction, including K.D. Sharma v. SAIL, Ramjas Foundation v. Union of India, and Prestige Lights Ltd. v. SBI.

Court's interpretation and reasoning: The Court examined the timeline of hearing notices and their receipt by the Petitioner. It was found that the Petitioner received all three hearing notices by speed post before the scheduled hearings. The Petitioner did not appear for the hearings but subsequently filed a writ petition challenging the SCN. The Court noted that the Petitioner had ample opportunity to seek hearing and raise objections but failed to do so in a timely manner.

Key evidence and findings: The Petitioner's own chart and tracking reports confirmed receipt of notices before the hearing dates. The previous writ petition filed by the Petitioner challenging the SCN was dismissed on merits, and no objection regarding non-service was raised at that time.

Application of law to facts: Since the Petitioner was duly served and had the opportunity to be heard but did not avail it, the impugned order passed after the hearing was valid. The Court emphasized that procedural lapses were not established and the Petitioner's claim of denial of hearing was untenable.

Treatment of competing arguments: The Petitioner argued non-receipt of notices; however, documentary evidence disproved this. The Court gave due consideration to the Petitioner's submissions but found them inconsistent with the record.

Conclusion: The impugned Order-in-Original was passed following due procedure and after affording opportunity for hearing; hence, it is valid and sustainable.

Issue 2: Maintainability of Writ Petition Challenging SCN and Order-in-Original in Light of Serious Fraud Allegations

Relevant legal framework and precedents: Writ jurisdiction under Articles 226 and 227 is discretionary and equitable, primarily to ensure substantial justice. The Court reiterated the principle that writ petitions would be entertained only if the petitioner approaches with clean hands and does not suppress or misrepresent facts. The Court relied on the precedent in Mukesh Kumar Garg v. Union of India & Ors., which held that writ relief is generally not available in cases involving serious allegations of tax fraud where alternate remedies exist.

Court's interpretation and reasoning: The Court observed that the Petitioner is a habitual offender with a history of involvement in fraudulent schemes. The allegations against him are grave, involving creation of fake firms, manipulation of GST refunds, and collusion with co-conspirators. Given the serious nature of the charges and the availability of statutory remedies, the Court declined to exercise writ jurisdiction to interfere with the SCN proceedings.

Key evidence and findings: The SCN and investigation records reveal the Petitioner as the principal mastermind behind the fraudulent availment of ITC through 25 fake firms. Electronic evidence, statements of name-lenders, and banking transaction scrutiny corroborate the conspiracy. The Petitioner's prior involvement in similar frauds was also noted.

Application of law to facts: The Court applied the principle that writ jurisdiction is not a substitute for statutory remedies, especially when the petitioner is implicated in serious fraud. The Petitioner's conduct and failure to disclose material facts militated against grant of relief.

Treatment of competing arguments: The Petitioner sought parity with another writ petition where relief was granted, but the Court distinguished that case on facts, noting that the other petitioner was not found to be an operator of the firms involved.

Conclusion: The writ petition challenging the SCN and Order-in-Original is not maintainable given the serious allegations and the availability of alternate remedies.

Issue 3: Findings on the Petitioner's Role as Mastermind in Fraudulent ITC Availment

Relevant legal framework and precedents: The CGST Act, 2017 and IGST Act provide for disallowance, recovery, interest, and penalty in cases of fraudulent availment of ITC. Sections 50, 74(1), 122(2)(b) of CGST Act and Section 20 of IGST Act were invoked in the SCN and adjudication.

Court's interpretation and reasoning: The Court noted the detailed investigation conducted by DGGI, including searches, recording of statements under Section 70 CGST Act, and seizure of electronic evidence. The findings establish the Petitioner as the principal conspirator who orchestrated creation of dummy firms using identities of vulnerable individuals to claim fraudulent ITC and refunds exceeding Rs. 275 crores.

Key evidence and findings: Statements of name-lenders revealed lack of knowledge or control over firms. Bank communications highlighted suspicious high-value transactions and immediate withdrawals. Electronic chats and digital data confirmed active collusion among the Petitioner and co-conspirators. Arrests and further investigations corroborated the conspiracy.

Application of law to facts: The evidence satisfied the requirements for disallowance and recovery of ITC, imposition of interest and penalties under the relevant GST provisions. The Petitioner's role as mastermind justified the demands raised in the SCN and confirmed by the Order-in-Original.

Treatment of competing arguments: The Petitioner's denial of involvement and claims of non-service were rejected based on overwhelming evidence and procedural compliance.

Conclusion: The Petitioner was correctly identified as the principal orchestrator of the fraudulent ITC scheme and is liable for recovery and penalties under the GST laws.

Issue 4: Status of Investigations and Related Proceedings Against Firms and Individuals

Relevant legal framework: The DGGI and State GST authorities have jurisdiction to initiate investigations, issue Show Cause Notices, and adjudicate tax demands under the GST regime. Coordination between authorities and comprehensive investigation is essential in complex fraud cases.

Court's interpretation and reasoning: The Court directed the DGGI to file a status report detailing all related SCNs and investigations against the firms and individuals involved. The status report revealed 73 related cases, with 42 firms subjected to SCNs and adjudication by various State GST authorities. The investigations uncovered a widespread racket involving multiple fake firms and individuals.

Key evidence and findings: The status report detailed the genesis of the investigation from high-value suspicious transactions reported by a bank. Searches, statements, and electronic evidence confirmed the non-existence or non-functionality of firms. The report also indicated ongoing compilation of additional information from other enforcement agencies.

Application of law to facts: The comprehensive investigation justified the SCN and Order-in-Original and underscored the systemic nature of the fraud.

Treatment of competing arguments: The Petitioner's submissions did not challenge the factual matrix revealed by the status report.

Conclusion: The investigations and related proceedings are extensive, and the impugned order is part of a coordinated enforcement effort against fraudulent ITC claims.

Issue 5: Appropriate Remedy and Directions Regarding Appeal

Relevant legal framework: Section 107 of the CGST Act provides for appeal against orders passed under the Act. The Court recognized the statutory remedy as the appropriate forum for challenge.

Court's interpretation and reasoning: Given the dismissal of writ relief and the serious nature of allegations, the Court relegated the Petitioner to file an appeal under Section 107 CGST Act with requisite pre-deposit. The Court granted extended time till 10th July 2025 for filing the appeal and clarified that the appeal shall not be dismissed on limitation grounds if filed within this period.

Key evidence and findings: The Court relied on procedural history and statutory provisions to guide the Petitioner towards proper recourse.

Application of law to facts: The statutory appellate remedy is adequate and efficacious, and the Petitioner is expected to pursue it instead of seeking writ relief.

Treatment of competing arguments: The Petitioner's plea for writ relief was rejected in favor of statutory appeal remedy.

Conclusion: The Petitioner is directed to file appeal under Section 107 CGST Act within the stipulated time with pre-deposit, failing which the appeal may be dismissed on limitation grounds.

3. SIGNIFICANT HOLDINGS

"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. Prerogative writs mentioned therein are issued for doing substantial justice. It is, therefore, of utmost necessity that the petitioner approaching the writ court must come with clean hands, put forward all the facts before the court without concealing or suppressing anything and seek an appropriate relief."

"The petitioner must disclose all the facts having a bearing on the relief sought without any qualification. This is because 'the court knows law but not facts.'"

"In view of the serious allegations of fraudulent availment of Input Tax Credit and the availability of statutory remedies, writ jurisdiction ought not to be exercised to quash the Show Cause Notice or the Order-in-Original."

"The Petitioner was duly served with hearing notices and had ample opportunity to participate in the proceedings but failed to avail the same. The impugned Order-in-Original passed after hearing is valid and sustainable."

"The Petitioner, being identified as the principal conspirator and mastermind behind the creation and operation of fictitious firms for fraudulent ITC claims, is liable for recovery of the disputed amount along with interest and penalty under the CGST and IGST Acts."

"The appropriate remedy for the Petitioner is to file an appeal under Section 107 of the CGST Act within the time granted along with the requisite pre-deposit. The appeal shall be adjudicated on merits and shall not be dismissed on limitation grounds if filed within the stipulated period."