2025 (6) TMI 514 - HC - GST

Wrongful availment of ITC - case of the Petitioner herein is that the SCN was not issued to them and the consequent personal hearing notice was also not issued - burden of proof - violation of principles of natural justice - HELD THAT - In the opinion of this Court the Petitioner having been given adequate notice and the nature of the matter being fraudulent availment of ITC the Court is not inclined to entertain a writ petition. This Court while deciding the above stated matter has already taken a view in this regard 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 the writ jurisdiction ought not to be exercised in such cases. This Court is not inclined to entertain the present writ petition - the Petitioner is permitted to avail of the appellate remedy by 15th July 2025 along with the necessary pre-deposit mandated under Section 107 of the Central Goods and Service Tax Act 2017 in which case the appeal shall be adjudicated on merits and shall not be dismissed on the ground of limitation. Petition disposed off.

Summary

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

1. Whether the impugned order, which holds the petitioner liable for wrongful availment and utilisation of Input Tax Credit (ITC) based on goods-less invoices, was validly passed after proper issuance of show cause notice (SCN) and personal hearing notices.

2. Whether the petitioner was denied natural justice by non-receipt of the SCN and personal hearing notices.

3. Whether the writ jurisdiction under Articles 226 and 227 of the Constitution of India is exercisable in cases involving allegations of fraudulent availment of ITC.

4. The applicability of the CGST Act provisions concerning ITC, penalties, and appellate remedies in the context of large-scale fraudulent ITC claims.

Issue-wise Detailed Analysis

1. Validity of the Impugned Order and Issuance of SCN and Personal Hearing Notices

The relevant legal framework includes the provisions of the Central Goods and Services Tax Act, 2017 (CGST Act), particularly Section 16 relating to ITC, and procedural requirements for issuance of SCNs and personal hearings under the Act. Precedents emphasize the need for adherence to principles of natural justice, including proper service of notices.

The Court examined the impugned order dated 3rd February 2025, which was issued against multiple noticees identified as having availed ITC fraudulently through invoices issued by a non-existent firm (M/s M L Traders). The SCN dated 3rd August 2024 was issued by the CGST Department to 1552 tax payers involving ineligible ITC amounting to Rs. 7309 crores.

The petitioner contended that the SCN and personal hearing notices were not issued to them. However, the Department produced a personal hearing notice dated 22nd November 2024 addressed to the petitioner, which was returned unserved with the remark "no such person." The Court noted that the address mentioned in the SCN matched the petitioner's address in the petition, and the delivery report bore the seal of the Delhi GPO, lending credibility to the Department's claim of attempted service.

Further, the impugned order records that some noticees, including M/s M L Traders and others, had filed replies to the SCN and some appeared for personal hearings, indicating procedural compliance by the Department. The petitioner's claim of non-service was therefore belied by these facts.

The Court applied the law to the facts, concluding that adequate notice had been given to the petitioner and that there was no denial of natural justice. The competing argument of non-service was rejected on the basis of credible evidence of attempted delivery and matching addresses.

2. Exercise of Writ Jurisdiction in Cases of Fraudulent Availment of ITC

The Court relied on its earlier decision in a related matter, which held that writ jurisdiction under Article 226 is an extraordinary remedy and should not be exercised to support unscrupulous litigants, especially in cases involving complex factual matrices and allegations of fraud.

The CGST Act's Section 16 defines ITC as a mechanism to avoid cascading taxes by allowing businesses to claim credit on inputs used in the supply chain. The Court emphasized that misuse of this facility through goods-less invoices undermines the GST regime, which is designed to be business-friendly and to promote ease of doing business.

In the prior ruling, the Court observed that the petitioner and connected persons allegedly floated firms solely to avail ITC fraudulently, resulting in demands and penalties. The Court held that such factual disputes require detailed inquiry and are not amenable to resolution in writ jurisdiction. It further noted that appellate remedies under Section 107 of the CGST Act are available to challenge such orders.

The Court reasoned that allowing writ petitions in such matters would lead to multiplicity of litigation and contradictory findings, thereby prejudicing the revenue and the GST system.

The petitioner's contention that the writ petition was the appropriate forum was thus rejected, and the Court directed the petitioner to avail appellate remedy.

3. Availability and Nature of Appellate Remedy

The CGST Act provides for an appeal against orders passed under the Act before the Appellate Authority, subject to pre-deposit requirements. The Court noted that the petitioner is entitled to file an appeal by 15th July 2025, with the requisite pre-deposit, and that the appeal shall be adjudicated on merits without dismissal on limitation grounds.

The Court clarified that observations made in the present order would not influence the appellate authority's final adjudication, preserving the independence of the appellate process.

Significant Holdings

The Court held:

"The petitioner, having been given adequate notice and the nature of the matter being fraudulent availment of ITC, the Court is not inclined to entertain a writ petition."

It further underscored the principle that:

"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."

On the exercise of writ jurisdiction, the Court stated:

"It is the settled position that this jurisdiction ought not be exercised by the Court to support unscrupulous litigants... when such transactions are entered into, a factual analysis would be required to be undertaken and the same cannot be decided in writ jurisdiction."

Regarding procedural compliance, the Court found that:

"The allegation that the SCN was not issued properly and that the personal hearing notice was also not issued appears to be clearly belied by the fact that some of the noticees to the SCN have, in fact, filed replies and some have also appeared for the personal hearing."

Finally, the Court concluded:

"The petitioner is permitted to avail of the appellate remedy by 15th July, 2025, along with the necessary pre-deposit mandated under Section 107 of the Central Goods and Service Tax Act, 2017, in which case the appeal shall be adjudicated on merits and shall not be dismissed on the ground of limitation."