2025 (6) TMI 424 - HC - GST

Maintainability of petition - availability of alternative remedy - Fraudulent availment of ITC - SCN and impugned order have been passed by different authorities - consolidated SCN has been issued for multiple financial years and the consequent impugned order has been passed - Violation of principles of natural justice - HELD THAT - As held by the Supreme Court Assistant Commissioner of State Tax and Ors. v. M/s Commercial Steel Limited 2021 (9) TMI 480 - SUPREME COURT a writ petition can be entertained under exceptional circumstances only which are set out in the said judgment held that There was in fact no violation of the principles of natural justice since a notice was served on the person in charge of the conveyance. In this backdrop it was not appropriate for the High Court to entertain a writ petition. The assessment of facts would have to be carried out by the appellate authority. As a matter of fact the High Court has while doing this exercise proceeded on the basis of surmises. However since we are inclined to relegate the respondent to the pursuit of the alternate statutory remedy under Section 107 this Court makes no observation on the merits of the case of the respondent. The nature of the allegations against the Petitioner in the present case as is clear from the SCN as also the impugned order is that the Petitioner in collusion with other entities has taken substantial benefit of ITC without sale of any goods or services. This strikes at the root of the Input Tax Credit facility which is recognised in the GST regime. An appeal before the appellate authority is a full-fledged remedy provided under Section 107 of the Central Goods and Service Tax Act 2017. This Court is not inclined to entertain the present writ petition - Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

(i) Whether a writ petition under Article 226 of the Constitution of India is maintainable in a case where the Petitioner challenges an Order-in-Original passed by the tax authorities, especially when an alternate statutory remedy under Section 107 of the Central Goods and Services Tax (CGST) Act, 2017 is available.

(ii) Whether the issuance of a consolidated Show Cause Notice (SCN) and consequent impugned order covering multiple financial years is legally permissible and valid.

(iii) Whether the Petitioner's challenge to the impugned order, which alleges fraudulent availment of Input Tax Credit (ITC), can be entertained in writ jurisdiction or should be relegated to the appellate authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Maintainability of Writ Petition under Article 226 in presence of Alternate Remedy under Section 107 CGST Act

Relevant legal framework and precedents: The Court extensively relied on the Supreme Court's ruling in the case of Assistant Commissioner of State Tax v. M/s Commercial Steel Limited, which clarified that writ petitions under Article 226 are maintainable only under exceptional circumstances such as breach of fundamental rights, violation of principles of natural justice, excess of jurisdiction, or challenge to the vires of the statute or delegated legislation. The existence of an alternate statutory remedy is not an absolute bar but ordinarily, the statutory remedy must be availed first.

Court's interpretation and reasoning: The Court found that none of the exceptional circumstances justifying writ jurisdiction were present in the instant case. There was no violation of natural justice since the notice was duly served. The Court emphasized that the assessment of facts and merits of the case is to be conducted by the appellate authority under Section 107 of the CGST Act, which provides a full-fledged remedy.

Key evidence and findings: The impugned order arose from a Show Cause Notice alleging fraudulent availment of ITC to the tune of Rs. 6,12,530/-. The Petitioner challenged the order via writ petition instead of pursuing the statutory appeal mechanism.

Application of law to facts: Given the availability of the statutory remedy and absence of exceptional circumstances, the Court held that the writ petition was not maintainable. The Petitioner was directed to pursue the grievance through the appellate authority.

Treatment of competing arguments: The Petitioner's contention that the writ petition was appropriate was rejected on the ground that the factual and legal issues raised are to be examined by the appellate authority and not in writ jurisdiction.

Conclusions: The writ petition was not maintainable, and the Petitioner was relegated to the statutory appellate remedy under Section 107 of the CGST Act.

Issue (ii): Legality of Consolidated Show Cause Notice and Impugned Order for Multiple Financial Years

Relevant legal framework and precedents: The Court acknowledged that the issue of issuing consolidated SCNs and orders for multiple financial years is currently under consideration in a separate writ petition titled Quest Infotech Pvt. Ltd. & Anr. v. Union of India.

Court's interpretation and reasoning: The Court refrained from making any conclusive observations on this issue and stated that the decision in the pending writ petition would bind future proceedings, including any appeals filed by the Petitioner against the impugned order.

Key evidence and findings: The impugned order was issued on a consolidated basis covering multiple financial years, which forms the basis of one of the Petitioner's challenges.

Application of law to facts: Since the issue was sub judice in another matter, the Court did not interfere and left the matter open for adjudication in the pending case.

Treatment of competing arguments: The Court did not entertain the Petitioner's arguments on this point in the present writ petition, deferring to the outcome of the other case.

Conclusions: No interference was made on the consolidated SCN issue; the Petitioner may raise this issue in appeal or rely on the forthcoming decision in the related case.

Issue (iii): Appropriateness of Exercising Writ Jurisdiction in Cases Alleging Fraudulent Availment of Input Tax Credit

Relevant legal framework and precedents: The Court referred to its earlier decision in Mukesh Kumar Garg v. Union of India, where it was held that writ jurisdiction should not ordinarily be exercised in cases involving fraudulent availment of ITC, given the serious nature of the allegations and the potential impact on the GST regime. The CGST Act's Section 16 provides for ITC as a business-friendly incentive, but misuse of this facility undermines the tax system.

Court's interpretation and reasoning: The Court emphasized that the allegations against the Petitioner involved a complex network of firms allegedly created for fraudulent ITC claims without actual supply of goods or services. It noted that the impugned order was detailed and involved demands and penalties imposed on multiple connected entities.

Key evidence and findings: The Department alleged collusion and fraudulent ITC claims amounting to substantial sums, which strike at the root of the GST input credit mechanism.

Application of law to facts: The Court held that such factual and complex issues require detailed adjudication by the appellate authority rather than being resolved in writ jurisdiction. It also highlighted the risk of multiplicity of litigation and contradictory findings if writ petitions were entertained in such matters.

Treatment of competing arguments: The Petitioner's attempt to challenge the order via writ petition was rejected, with the Court observing that writ jurisdiction should not be used to support unscrupulous litigants or to bypass statutory remedies.

Conclusions: The Court declined to exercise writ jurisdiction in this matter and directed the Petitioner to avail the statutory appellate remedy.

3. SIGNIFICANT HOLDINGS

The Court's crucial legal reasoning is encapsulated in the following verbatim excerpts:

"The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution. But a writ petition can be entertained in exceptional circumstances where there is: (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation."

"In the present case, none of the above exceptions was established... The assessment of facts would have to be carried out by the appellate authority."

"The entire concept of Input Tax Credit... is meant as an incentive for businesses... This facility... has been misused by various individuals... Such misuse, if permitted to continue, would create an enormous dent in the GST regime itself."

"The Court, in exercise of its writ jurisdiction, cannot adjudicate upon or ascertain the factual aspects pertaining to what was the role played by the Petitioner, whether the penalty imposed is justified or not... 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."

Core principles established include:

- Writ jurisdiction under Article 226 is to be exercised sparingly and only in exceptional circumstances, especially when alternate statutory remedies exist.

- Allegations of fraudulent availment of ITC require detailed factual adjudication by the designated appellate authorities and are not suitable for resolution via writ petitions.

- Consolidated SCNs and orders for multiple financial years remain a live issue pending adjudication in other proceedings and do not warrant interference in the present writ petition.

- The integrity of the GST regime and the Input Tax Credit mechanism must be protected from misuse, and judicial intervention should not facilitate circumvention of statutory procedures.

Final determinations on each issue:

- The writ petition challenging the impugned order is dismissed for lack of maintainability in the absence of exceptional circumstances.

- The Petitioner is directed to avail the statutory remedy of appeal under Section 107 of the CGST Act.

- No interference is made with the issuance of consolidated SCN and impugned order for multiple financial years; the Petitioner may raise this issue in appeal or rely on the outcome of the pending related case.