2025 (7) TMI 780 - HC - GST

Maintainability of petition - availability of alternative remedy - large scale availment and passing off of fraudulent Input Tax Credit (ITC) - misuse of provisional GST Number - HELD THAT - In the impugned order details have been given as to the manner in which ITC has been availed of and passed on to almost 63 entities who are listed in the impugned order. The case is thus a serious matter and anyone whose name number or identity is misused would not take the matter so lightly especially when the demands raised are so high. An appeal before the appellate authority is a continuation of the proceedings before the adjudicating authority itself. A full-fledged remedy for filing an appeal has already been provided under Section 107 of the Central Goods and Service Tax Act 2017. This Court is of the opinion the Petitioner ought to avail of its remedy in accordance with law by filing an appeal against the impugned order under Section 107 of the Central Goods and Service Tax Act 2017. Though the limitation for filing such appeal has already lapsed however in the facts of this case the Petitioner is given one month time to file the appeal along with the requisite pre-deposit. List on 25 th August 2025.

Summary

1. The primary legal issues considered by the Court revolve around the validity and propriety of the demand raised by the GST Department against the Petitioner for over Rs. 48 crores on account of alleged fraudulent availment and passing on of Input Tax Credit (ITC) under a provisional GST registration number that the Petitioner claims was misused. The core questions include:

- Whether the Petitioner can be held liable for transactions conducted under the provisional GST registration number allotted to 'M/s Samyak International', which the Petitioner asserts was not sought by him and was misused.

- The extent to which the Petitioner's cooperation with the GST Department and the lodging of a police complaint/FIR impacts his liability.

- The appropriateness of invoking writ jurisdiction in a matter involving complex factual disputes related to fraudulent ITC claims under the GST regime.

- The availability and adequacy of alternative remedies, specifically the statutory appellate remedy under Section 107 of the Central Goods and Service Tax Act, 2017.

- The Court's role in adjudicating such cases involving large-scale fraudulent ITC claims and the principles guiding the exercise of writ jurisdiction in such matters.

2. Issue-wise detailed analysis:

Issue 1: Liability of the Petitioner for transactions under the provisional GST registration number

The legal framework governing the availment of ITC is primarily encapsulated in Section 16 of the Central Goods and Service Tax Act, 2017 (CGST Act). This section allows businesses to claim credit for input tax paid on goods and services used in the course of business. The GST Department alleged that 'M/s Samyak International' was a fake firm which availed and passed on ineligible ITC, thereby causing a significant loss to the exchequer.

The Court noted that the Petitioner claimed he had ceased business operations under 'M/s Samyak International' as of 28th July 2017 and had sought a new registration under 'M/s Samyak Fashion (India)'. He further asserted that the provisional GST registration was allotted without his consent and was misused by unknown parties. The Petitioner's defense was supported by his cooperation with the GST Department and the filing of a police complaint, resulting in an FIR.

However, the impugned order detailed extensive transactions amounting to over Rs. 23 crores in tax involving multiple recipients under the provisional registration number. The Court emphasized that such large-scale fraudulent transactions raise serious concerns and require thorough factual investigation.

The Court recognized that the Petitioner's claim of non-involvement and misuse of the GST number raises factual issues that cannot be conclusively resolved in writ jurisdiction. The factual matrix includes the identity of the parties involved, the nature of transactions, and the extent of the Petitioner's knowledge or complicity.

Issue 2: Appropriateness of writ jurisdiction and availability of alternative remedies

The Court underscored that the CGST Act provides a comprehensive adjudicatory mechanism, including an appeal under Section 107, which is a continuation of the proceedings before the adjudicating authority. The Court referred to its earlier decision in a similar matter involving fraudulent ITC claims, where it was held that writ jurisdiction under Article 226 of the Constitution is extraordinary and should be exercised sparingly, especially in cases involving complex factual disputes and serious allegations of fraud.

The Court cited the previous ruling which elaborated that the Input Tax Credit scheme is a crucial feature of the GST regime designed to facilitate ease of doing business but is susceptible to misuse. The earlier judgment highlighted the necessity to prevent unscrupulous litigants from misusing writ jurisdiction to circumvent statutory remedies and cause multiplicity of litigation.

In the present case, the Court reiterated that the Petitioner's contentions are better addressed through the appellate process. The Court granted the Petitioner an extension of one month to file an appeal against the impugned order despite the lapse of the limitation period, emphasizing that the appeal shall be adjudicated on merits and not dismissed on limitation grounds.

Issue 3: Role of investigative agencies and further proceedings

Recognizing the seriousness of the allegations and the need for a proper investigation, the Court directed the Economic Offences Wing of the Delhi Police to file a status report on the investigation into the misuse of the GST registration number. This step was intended to ensure that all factual aspects are thoroughly examined by the appropriate authorities.

The Court made it clear that the investigation and the appellate process are complementary and that the Petitioner must avail the statutory remedy to challenge the demand and penalty imposed.

3. Significant holdings:

The Court established the principle that in cases involving fraudulent availment of Input Tax Credit, the exercise of writ jurisdiction is to be approached with caution and reserved for exceptional circumstances, given the complex factual matrix and the potential impact on the GST regime. The Court stated:

"The Court has considered the matter under Article 226 of the Constitution of India, which is an exercise of extraordinary writ jurisdiction. 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."

Further, the Court emphasized the business-friendly nature of the Input Tax Credit scheme and its susceptibility to misuse, noting:

"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 Court concluded that the Petitioner must pursue the statutory appellate remedy and that the appeal shall be entertained despite the lapse of limitation, provided it is filed within one month with the requisite pre-deposit. It also mandated the continuation of investigation by the Economic Offences Wing to ensure factual clarity.

In sum, the Court held that the writ petition was not the appropriate forum for adjudication of the complex factual and legal issues raised and that the Petitioner's remedy lies in the statutory appeal process, thereby preserving the integrity of the GST regime and preventing misuse of judicial process.