Writ Petition Dismissed by Delhi HC Against Penalty under Section 122(1A) for Enabling Fraudulent ITC through Fake Firms in the case of Bhupender Kumar v. Additional Commissioner, CGST Delhi North & Ors.
A recent Delhi High Court ruling dismissed a writ petition challenging a penalty imposed under Section 122(1A) of the CGST Act against a GST consultant, Bhupender Kumar. The consultant was accused of enabling fraudulent Input Tax Credit (ITC) worth ₹2856.62 crores through 63 fake firms. The court observed that the show cause notice (SCN), though issued under Section 122(3), sufficiently covered allegations falling under Section 122(1A). The petitioner failed to respond to the SCN, thus losing the opportunity to rebut the allegations during the adjudication process. The court affirmed that the petitioner’s role as a consultant, enabling the creation and operation of fake firms for large-scale ITC fraud, attracted the penalty. The High Court further stated that the case involved disputed facts better suited for an appeal under Section 107 of the CGST Act, and thus, writ jurisdiction was not appropriate. This decision aligns with other High Court rulings emphasizing that alternative statutory remedies should be pursued in fact-intensive tax fraud cases, and a lack of explicit reference to a specific sub-section in an SCN may not be fatal if the allegations clearly fall within its scope and the petitioner fails to respond.
Facts:
Bhupender Kumar (“the Petitioner”), a GST consultant and former employee of the Delhi GST Department, was issued a show cause notice dated March 8, 2024 by the Directorate General of GST Intelligence, Ghaziabad (“the Respondent”). The SCN alleged that the Petitioner aided Mr. Sanjay Sehgal and others in creating and operating 63 fake firms, of which 54 were used for fraudulent availment and passing of Input Tax Credit (ITC) amounting to ₹2856.62 crores.
The SCN was issued under Section 122(3)(a), (d), and (e) of the CGST Act. The Petitioner did not file any reply to the SCN and subsequently challenged the final order dated January 21, 2025, inter alia on the ground that penalty was wrongly imposed under Section 122(1A) without notice or fulfilment of statutory conditions.
The Petitioner submitted that he was merely a consultant, and the main offender was Mr. Sehgal, and that Section 122(1A) was not invoked in the SCN, hence could not form the basis of the final order.
Issue:
Whether the penalty imposed under Section 122(1A) of the CGST Act was valid despite the SCN being issued only under Section 122(3), and whether the Petitioner was afforded a fair opportunity of hearing?
Held:
The Hon’ble Delhi High Court in W.P.(C) 9141/2025 held as under:
- Observed that, the SCN though issued under Section 122(3), made reference to the broader framework of Section 122 and included allegations that squarely attract Section 122(1A).
- Noted that, the Petitioner was aware of the fraudulent nature of the firms and assisted in their creation using his expertise as a GST consultant. His role enabled the large-scale fraudulent availment of ITC.
- Held that, since the Petitioner chose not to file any reply or rebut the allegations despite receiving the SCN and being aware of its contents, he cannot later claim that he was not given an opportunity.
- Further the Court clarified that since the SCN was issued after the provision came into force on January 1, 2021, its invocation was valid, especially as the fraudulent conduct was part of a continuing scheme.
- Held that, the matter involved disputed questions of fact and was not amenable to writ jurisdiction. However, the Court allowed the Petitioner to pursue a statutory appeal under Section 107 of the CGST Act despite expiry of the limitation period.
Our Comments:
An alternative appellate remedy under Section 107 of the CGST Act bars invocation of writ jurisdiction, particularly in fact-intensive cases involving tax fraud. The Court held that where the show cause notice encompasses allegations and factual matrices that fall within the scope of Section 122(1A), a separate, explicit reference to that sub-section may not be fatal, especially where the Petitioner has failed to rebut or respond during adjudication.
The Bombay High Court in Amit Manilal Haria v. Joint Commissioner of CGST & CE, WP No. 5001 of 2025, where it was held that, Prima facie, we find substance in the argument that Section 122(1A), brought on the statute book only with effect from January 1, 2021, cannot be retrospectively applied to impose penalty for periods prior to that date. Section 122(1A) is prospective in nature and cannot be invoked for alleged contraventions prior to January 1, 2021 and that Penalty under Section 122(1A) applies only to a person who is a “taxable person” and who has retained the benefit of the contravention, which must be proved with evidence.
In Sunil Gulati v. Additional Commissioner, CGST Delhi South Commissionerate [W.P.(C) 4383/2025, decision dated 9, April 2025], the Hon’ble Delhi High Court adopted a consistent view while dealing with a penalty under Section 122(1A). There too, the petitioner was an accountant accused of facilitating fraudulent ITC. Despite raising similar grounds, such as lack of personal benefit and improper SCN service, the Court refused to invoke writ jurisdiction, holding that factual aspects like the petitioner’s role and knowledge were best adjudicated in appeal. This reinforces the legal position that penalty orders involving factual evaluation and available statutory remedies will not ordinarily be interfered with under Article 226.
In Mukesh Kumar Garg v. Union of India & Ors. [W.P.(C) 5737/2025], the court declined to exercise writ jurisdiction in a similar case involving bogus firms and fraudulent ITC. In that case, the Court had emphasized that the allegations reveal the complex maze of transactions enabling fraudulent availment of the ITC. Misuse of Section 16 of the CGST Act, if permitted to continue, would create an enormous dent in the GST regime itself. It is the settled position that this jurisdiction ought not to be exercised by the Court to support unscrupulous litigants.
Relevant Provisions:
Section 122(1A) – CGST Act, 2017
“Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.”
Section 107. Appeals to Appellate Authority – CGST Act, 2017
“(1) Any person aggrieved by any decision or order passed under this Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act by an adjudicating authority may appeal to such Appellate Authority as may be prescribed within three months from the date on which the said decision or order is communicated to such person…”
*********
(Author can be reached at info@a2ztaxcorp.com)
Author Bio
