Delhi HC Rationalizes Pre-Deposit for Overlapping Fictitious ITC Appeals

R.U. Overseas Through ITS Proprietor Sh. Ujala Goel Vs Directorate General of Goods And Services Tax Intelligence DGGI And Ors. (Delhi High Court)

The Delhi High Court, in the case of R.U. Overseas Through ITS Proprietor Sh. Ujala Goel Vs Directorate General of Goods And Services Tax Intelligence (DGGI) And Ors., addressed the challenge posed by a taxpayer facing multiple, potentially overlapping GST demands arising from different jurisdictional authorities (DGST, CGST East, and CGST North) related to fictitious Input Tax Credit (ITC) claims. The petitioner, R.U. Overseas, sought relief against three separate Orders-in-Original (OIOs) dated August 24, 2024, January 24, 2025, and February 1, 2025, all stemming from investigations into fraudulent ITC networks.

The core issue revolved around the overlap of demands concerning fictitious suppliers. The first order (OIO No. 1, DGST) raised a demand of against the petitioner for various reasons, including excess ITC claims from cancelled dealers. The petitioner had already filed an appeal against this order.

The second order (OIO No. 2, CGST East) arose from a large-scale investigation involving M/s Anannya Exim and other firms, including M/s Ganpati Enterprises, M/s Reema Polychem Pvt. Ltd., and M/s Fortune Graphics Limited. These firms were alleged to have passed on fictitious ITC totaling crores. OIO No. 2 raised a demand of against the petitioner for ITC received from these entities, including qua M/s Ganpati Enterprises.

The third order (OIO No. 3, CGST North) originated from a separate investigation involving M/s Choudhary Metals and M/s Kavita Metals, raising a demand of against the petitioner specifically for ITC obtained from M/s Fortune Graphics Limited.

The petitioner contended that there was an overlap between OIO No. 1 and OIO No. 2 regarding M/s Ganpati Enterprises, and an overlap between OIO No. 2 and OIO No. 3 concerning M/s Fortune Graphics Limited. Given the parallel demands from different departments, the petitioner approached the High Court.

The revenue authorities argued that the matter involved serious fraud and fake ITC, and the petitioner possessed an alternate remedy by way of appeal, even though the limitation period had expired.

The High Court acknowledged the possibility of overlap but ruled that the challenge to the substantive demands must be addressed in the respective appeals, as the alleged fraud involved thousands of entities and several hundred crores, making a conclusive finding on overlap difficult in writ jurisdiction.

However, recognizing the procedural complexity and the potential for double demand, the Court provided relief by rationalizing the pre-deposit requirement for the appeals:

1. OIO No. 2 and OIO No. 3 Appeals Allowed: The petitioner was permitted to file appeals against OIO No. 2 (January 24, 2025) and OIO No. 3 (February 1, 2025), notwithstanding the expiry of the limitation period, provided they filed the appeals by November 15, 2025.

2. Rationalized Pre-Deposit: Crucially, the Court directed that the requisite pre-deposit must be made only in respect of the demand raised vide OIO No. 2, i.e., on the tax amount of . The amount already paid as pre-deposit for the M/s Ganpati Enterprises demand () was allowed to be deducted from this liability.

3. Waiver for OIO No. 3: The Court explicitly directed that no pre-deposit shall be required for the appeal challenging OIO No. 3, as the demand was found to be overlapping with OIO No. 2.

4. Direction to Appellate Authority: The Appellate Authority was directed to specifically consider the fact that the demand relating to M/s Fortune Graphics Limited had already been raised in OIO No. 2 while hearing the appeal against OIO No. 3.

5. Stay on SCN: Furthermore, a separate Show Cause Notice (SCN) dated August 6, 2024, proposing a demand of regarding M/s Nymphaea Trademart Pvt. Ltd., was ordered to not be proceeded with against the petitioner since it was overlapping with OIO No. 2, which was already under appeal.

The decision is a significant step in managing complex, multi-jurisdictional fraud investigations under GST, ensuring a taxpayer’s right to appeal is preserved while addressing concerns of double jeopardy through a pragmatic rationalization of the statutory pre-deposit requirement.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. This hearing has been done through hybrid mode.

2. The present petition has been filed under Articles 226 and 227 of the Constitution of India, inter alia, challenging the following impugned orders:

• Order-in-Original dated 24^th August, 2024 (hereinafter, ‘impugned order no.1’)
• Order-in-Original dated 24^th January, 2025 (hereinafter, ‘impugned order no. 2’)
• Order-in-Original dated 1^st February, 2025 (hereinafter, ‘impugned order 3’)

3. These impugned orders relate to demands raised by the GST Department in respect of a large number of companies including the Petitioner. The summary of each of the orders is set out below:

Impugned Order No.1 dated 24th August, 2024

(i) This impugned order has been passed by the Delhi Goods and Service Tax (hereinafter, ‘DGST’) Department against the Petitioner in respect of certain reconciliations and other claims made by the Department. The various heads under which demands have been raised under this order are as under:

• • Under-declaration of output tax;
  • Excess claim of Input Tax Credit (hereinafter, ‘ITC’) including the ITC claimed from cancelled dealers.

(ii) The total demand in this case is to the tune of Rs.8,96,398/- which includes tax, interest and penalty. The tax amount is to the tune of Rs. 4,64,580.00/-.

(iii) The Petitioner has already filed an appeal in respect of this order which is pending before the Appellate Authority.

Impugned Order No.2 dated 24^th January, 2025

(i) This impugned order arises out of an investigation conducted against various firms commencing from M/s Anannya Exim. The allegation is that the said M/s Anannya Exim had obtained bills/invoices without any supply of goods, from various suppliers including M/s Ganpati Enterprises. The data on M/s Ganpati Enterprises’ portal revealed that the promoter of the said firm Mr. Sumit Tandon was also Director in M/s. Reema Polychem Pvt. Ltd. and M/s. Fortune Graphics Limited. The said three firms had shown outward supplies of Rs. 3470.04 crore, thereby passing of ITC amounting to Rs. 677.76 crore.

(ii) The Central Goods and Service Tax (hereinafter, ‘CGST’) Department found a gap between inward and outward supply values. The inward supply only seemed to be Rs.1080 crores involving ITC of Rs. 211.57 crore. Investigation was then conducted and the Petitioner was one of the entities which was found to have received ITC of Rs. 4,64,580.00/- qua M/s Ganpati Enterprises, M/s. Reema Polychem Pvt. Ltd. and M/s. Fortune Graphics Limited.

(iii) The total demand raised in this order against the Petitioner is to the tune of Rs. 26,047,208/-.

Impugned Order No.3 dated 1^st February, 2025

(i) This impugned order relates to investigation which was initiated against one M/s Choudhary Metals and M/s Kavita Metals wherein the transaction qua the Petitioner is ITC obtained from M/s. Fortune Graphics Limited to the tune of Rs. 9,999,135.00/-.

4. The submission of Mr. Bhatia, ld. Counsel appearing for the Petitioner is that insofar as M/s Ganpati Enterprises is concerned, there is an overlap between impugned order No.1 and impugned order No.2. Insofar as M/s. Fortune Graphics Limited is concerned, there is an overlap between impugned order No.2 and impugned order No.3. In view of these overlaps and the fact that parallel demands are being raised by DGST, CGST (East) and CGST (North), the present writ petition has been filed challenging the said orders.

5. Mr. Beriwal, ld. Counsel on the other hand submits that these cases involve passing on of fake and fraudulent ITC and the Petitioners have an alternate remedy by way of appeals. Moreover, even the period of limitation for filing appeals has expired.

6. Heard. In all these impugned orders, there are various third-party firms which are involved which are stated to be fictitious and non-existent who have passed on ITC without actual supply of goods and services. There could be some overlap insofar as the Petitioner is concerned, however, the challenge to the impugned orders would be required to be considered in the respective appeals as the ITC availed is not related only to the Petitioner but to thousands of entities, running into several hundred crores.

7. Under these circumstances, this Court is of the opinion that while there may be overlap, the Petitioner still ought to be relegated to avail of the appellate remedy. Accordingly, it is directed that insofar as the impugned order No.2 and impugned order No.3 are concerned, e., the impugned orders dated 24^th January, 2025 and 1^st February, 2025 are concerned, the Petitioner is permitted to challenge these two impugned orders by filing appeals before the Appellate Authority.

8. Out of the total amount of tax demanded e., Rs.13,023,604.00/- and Rs. 9,999,135.00/- the pre-deposit shall be made only in respect of the DRC-07 dated 3^rd February, 2025 passed pursuant to the impugned order No.2. From the said amount, the amount which was paid as pre-deposit towards the demand qua M/s Ganpati Enterprises i.e., to the tune of Rs. 3,43,082/- shall be deducted.

9. The pre-deposit shall be made only in respect of demand raised to the tune of Rs.13,023,604.00/- e., demand raised vide impugned order No. 2 Insofar as the appeal challenging impugned order No. 3 is concerned, no pre-deposit shall be liable to be made as the amount is over-lapping with impugned order No.2.

10. The Appellate Authority which receives the appeal qua impugned order No.3 shall consider the fact that insofar as M/s. Fortune Graphics Limited is concerned, in impugned order No.2, the demand has already been raised against the Petitioner.

11. In addition, there is a challenge to Show Cause Notice dated 6^th August, 2024 wherein a demand is proposed to be raised for a sum of Rs.2,43,000/- in respect of the transactions with M/s Nymphaea Trademart Pvt. Ltd. Since the same is overlapping with the order passed on 24^th August, 2024 e., impugned order No. 2 where the Petitioner is already in appeal, accordingly, the said Show Cause Notice dated 6^th August, 2024 shall not be proceeded with qua the Petitioner.

12. Let the appeals be filed by the Petitioner by 15^th November, 2025 with requisite pre-deposit as directed above.

13. Petition is disposed of in these terms. All pending applications, if any, are also disposed of.