2025 (5) TMI 2075 - HC - GST

Imposition of penalty under Section 122(1)(vii) read with Section 122(2)(b) of the CGST Act 2017 - fake availment of Input Tax Credit (ITC) - grievance of the Petitioner is that despite this order dated 4th November 2024 the RUDs were not supplied to the Petitioner and the same were furnished only on 14th May 2025 - HELD THAT - The contentions that the Petitioner wishes to raise can always be raised in appeal in as much as this Court has already taken a view in Mukesh Kumar Garg vs. Union of India Ors. 2025 (5) TMI 922 - DELHI HIGH COURT that where cases involving fraudulent availment of ITC are concerned considering the burden on the exchequer and the nature of impact on the GST regime writ jurisdiction ought not to be ordinarily exercised in such cases. The Petitioner has further confirmed that the RUDs have now been received on 14th May 2025. Considering the nature of this matter which involves allegations of availment of fraudulent ITC this Court is not inclined to entertain the writ petition. Under such circumstances. The Petitioner is free to avail of its remedies under Section 107 of the Central Goods and Service Tax Act 2017. If the Petitioner wishes to file an appeal it may do so by 15th July 2025 along with the requisite pre-deposit. Upon the said appeal being filed it shall be adjudicated on merits and shall not be dismissed as being barred by limitation. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

• Whether the imposition of penalty under Section 122(1)(vii) read with Section 122(2)(b) of the CGST Act, 2017, on the Petitioner for receiving invoices without actual supply of goods or services is justified.
• Whether the Petitioner was connected to the firms of Late Mrs. Aaurti Kapoor, which allegedly issued goods-less invoices leading to fraudulent availment of Input Tax Credit (ITC).
• Whether the Petitioner was denied procedural fairness by not being furnished with the Relied Upon Documents (RUDs) in a timely manner, thereby constraining the right to file an effective response.
• Whether the writ jurisdiction under Articles 226 and 227 of the Constitution of India is appropriate to entertain challenges against the impugned order in cases involving fraudulent availment of ITC.
• The scope of appellate remedy under Section 107 of the CGST Act and the Court's stance on multiplicity of litigation in such matters.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for Imposition of Penalty under Section 122(1)(vii) read with Section 122(2)(b) of the CGST Act

The legal framework involves the provisions of the Central Goods and Services Tax Act, 2017, particularly Section 122 which deals with penalties for certain offences. Section 122(1)(vii) penalizes receipt of invoices or bills without actual supply of goods or services, and Section 122(2)(b) prescribes the penalty amount.

The impugned order imposed a penalty of Rs. 1,03,80,024/- on the Petitioner for allegedly receiving goods-less invoices from firms linked to Late Mrs. Aaurti Kapoor, which purportedly facilitated fraudulent ITC to the tune of Rs. 172 crores. The Court noted that the invoices were issued by firms such as M/s Satyam Associates and M/s Shivaay Trading, which did not supply actual goods but issued invoices to pass on ITC.

The Court observed that the factual question of whether the Petitioner was connected to these firms is critical and cannot be decided in writ jurisdiction. The Petitioner's failure to file a substantive reply to the Show Cause Notice (SCN) on merits was also highlighted.

Thus, the Court applied the CGST Act provisions to the facts, recognizing the serious nature of the allegations and the detailed findings in the impugned order. The penalty imposition was held to be a matter requiring factual determination.

Issue 2: Connection between the Petitioner and the Firms of Late Mrs. Aaurti Kapoor

The Petitioner contended that there was no documentary evidence connecting them to Mrs. Aaurti Kapoor or her firms, citing statements in the RUDs. The Respondent-Department relied on GSTR-1M returns showing outward supplies via invoices without actual supply.

The Court held that the existence or absence of connection is a factual issue. It noted that the Petitioner was aware of the proceedings and the SCN challenged earlier without success. The Court emphasized that such factual disputes cannot be adjudicated in writ jurisdiction but are to be examined in appropriate appellate or adjudicatory proceedings.

Issue 3: Denial of Procedural Fairness by Delay in Furnishing Relied Upon Documents (RUDs)

The Petitioner argued that RUDs were not provided until after a contempt petition was filed, thus prejudicing the right to respond effectively. The Court acknowledged this grievance but noted that an earlier order dated 4th November, 2024, had already directed the Respondent to provide all relied upon documents.

Despite delay, the Court found that the Petitioner had now received the RUDs on 14th May, 2025, and was aware of the proceedings. The Court did not find sufficient grounds to quash the impugned order on this basis, emphasizing that procedural lapses do not justify interference in writ jurisdiction when alternative remedies exist.

Issue 4: Appropriateness of Writ Jurisdiction in Cases Involving Fraudulent Availment of ITC

The Court referred to its earlier judgment in a similar matter involving fraudulent ITC, where it was held that writ jurisdiction is not ordinarily to be exercised in such cases due to the serious nature of allegations, the need for detailed factual inquiry, and the risk of multiplicity of litigation.

The Court reasoned that the CGST Act provides an appeal mechanism under Section 107, which is the appropriate forum for challenging such orders. It observed that writ jurisdiction is extraordinary and should not be used to support unscrupulous litigants or to bypass statutory remedies.

The Court underscored the importance of protecting the GST regime from misuse, noting that fraudulent availment of ITC causes significant damage to the exchequer and the tax system.

Issue 5: Availability and Scope of Appellate Remedy under Section 107 of the CGST Act

The Court noted that the impugned order is appealable under Section 107 of the CGST Act. It observed that one of the co-noticees had already filed an appeal before the Appellate Authority.

The Court allowed the Petitioner to file an appeal by 15th July, 2025, with the requisite pre-deposit, and directed that the appeal be adjudicated on merits without being dismissed on limitation grounds. This underscores the statutory appellate framework as the proper avenue for dispute resolution.

The Court also emphasized that allowing multiple remedies before different forums would result in multiplicity of litigation and potentially contradictory findings, which must be avoided.

3. SIGNIFICANT HOLDINGS

The Court held:

"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 meant as an incentive for businesses... The same has been misused by various individuals... Such misuse, if permitted to continue, would create an enormous dent in the GST regime itself."

"Insofar as exercise of writ jurisdiction itself is concerned, it is the settled position that this jurisdiction ought not be exercised by the Court to support the unscrupulous litigants."

"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."

The Court concluded that the writ petition was not maintainable given the availability of statutory remedies and the nature of the allegations. It directed the Petitioner to pursue appeal under Section 107 of the CGST Act and disposed of the petition accordingly.