Case Law Details
Mahesh Fabrinox Pvt. Ltd Vs Union of India & Anr. (Delhi High Court)
Delhi High Court has dismissed a writ petition challenging a demand raised for the alleged fraudulent availment of Input Tax Credit (ITC), imposing a cost of ₹1 lakh on the petitioner. The court observed a pattern of using writ petitions on technical grounds to evade consequences in cases involving large-scale GST fraud and emphasized the need for circumspection in exercising writ jurisdiction in such matters, particularly when the petitioner’s conduct appears questionable.
The case, Mahesh Fabrinox Pvt. Ltd Vs Union of India & Anr., arose from an Order-in-Original dated February 1, 2025, passed by the Additional Commissioner, Central Goods and Services Tax, which raised a demand against Mahesh Fabrinox Pvt. Ltd. for fraudulently claiming ITC.
According to the allegations outlined in the show cause notice (SCN) dated August 4, 2024, and the subsequent order, one Mr. Karan Kumar Agarwal had allegedly established a network involving numerous firms to commit GST fraud. The scheme purportedly involved creating or using these firms to issue fabricated invoices without any actual movement of goods. Based on these invoices, entities like the petitioner firm would then fraudulently avail ITC. The petitioner firm was alleged to be one such entity that had raised invoices against one of the purportedly fake firms set up by Mr. Agarwal, thereby enabling the pass-on of fraudulent ITC benefits.
The petitioner firm approached the High Court under Articles 226 and 227 of the Constitution, primarily arguing that the impugned order demanding the tax was flawed because their reply to the SCN had not been considered, and they were not granted a personal hearing before the order was issued. The petitioner’s counsel specifically highlighted the content of their submitted reply, which asserted that during the relevant financial year, 2017-18, the company had not even commenced its operations. Therefore, they argued, there was no possibility of their firm receiving any supplies from other entities, including the firms mentioned in the SCN, in that period. The reply submitted by the petitioner claimed the company was registered effective from November 28, 2017, and was primarily engaged in the installation of a manufacturing unit, with activities limited to purchasing machinery and assets, not trading or manufacturing goods that would involve taking supplies from the listed parties.
This position presented by the petitioner was contested by the counsel representing the Revenue Department (Respondents). The department’s counsel submitted before the court that the allegation was indeed one of fraudulent ITC availment. Crucially, the department asserted that proper procedure was followed: three separate hearing notices were issued to the petitioner firm for hearings scheduled on November 27, 2024, December 4, 2024, and December 27, 2024. However, the petitioner firm failed to attend any of these scheduled hearings. Furthermore, the department’s counsel stated that before the impugned order was finalized, the concerned authority had verified the online portal and found that no reply had been uploaded by the petitioner firm. A screenshot of the portal status prior to the order’s issuance was presented to the court to support this claim.
The petitioner’s counsel countered the department’s assertion regarding the absence of a reply on the portal by referring to a Form GST DRC-06 submitted by the petitioner, which indicated that a personal hearing had been requested.
The High Court, after hearing arguments from both sides, undertook a perusal of the materials presented, including the petitioner’s purported reply and the impugned order itself. The court’s attention was drawn to a significant discrepancy between the stand taken by the petitioner in their written reply and a voluntary statement recorded from Mr. Vishu Goyal, a Director of the Petitioner Firm, pursuant to summons issued earlier on August 6, 2022.
The impugned order contained details of Mr. Goyal’s statement, wherein he was recorded as admitting to meeting Mr. Karan Kumar Agarwal and being offered “goods less invoices.” According to the recorded statement, Mr. Goyal agreed to this arrangement and was paid a 6% commission on the total tax value against these invoices. The statement also indicated that while some consignments related to certain invoices were received without goods, the majority of invoices were received along with goods. Critically, Mr. Goyal’s statement, as recorded in the order, indicated his awareness that purchasing goods-less invoices was illegal under the GST Act, but he agreed due to business slowdown during the Covid period. The statement further detailed significant purchases from one specific firm, M/s Jai Shree Banke Bihari Traders, alleged to be part of Mr. Agarwal’s network.
Upon query from the court, the petitioner’s counsel confirmed that the statement of Mr. Goyal had indeed been recorded by the department. The court found that the stands taken in the written reply and the recorded statement were “completely at variance with each other.” The statement appeared to contain clear admissions of involvement in the fraudulent scheme.
The High Court noted the scale of the alleged fraud, which was stated to be more than ₹56.2 crores involving a total of 527 firms, including the petitioner firm. The court emphasized that in exercising its writ jurisdiction under Article 226 of the Constitution, it must be “circumspect” when dealing with allegations of such large-scale fraud.
The court then made a pointed observation about a discernible “pattern” in which persons accused of either fraudulently availing ITC or facilitating such fraud repeatedly approach the High Court invoking writ jurisdiction based on what the court termed “some technical grounds.” This observation by the court reflects an awareness of multiple similar cases coming before it, indicating a judicial perspective on the perceived misuse of the extraordinary writ jurisdiction in an attempt to avoid penalties for alleged financial misconduct. While the court did not cite specific judicial precedents in this context, its reference to a ‘pattern’ and the need for circumspection in fraud cases highlights a general judicial approach shaped by cumulative experience in handling such petitions.
The court asserted that writ jurisdiction, being discretionary, should not be exercised in such cases as long as there is no violation of natural justice or a jurisdictional error, particularly if the petitioner has not approached the court with “clean hands.” In the present case, the court found no such infraction, noting that the SCN was duly issued, personal hearing notices were provided (though not attended), and there was no indication of arbitrary exercise of power by the department.
Given the “contradictory stand taken in the reply and the statement of the Petitioner’s Director,” the court concluded that, prima facie, the department’s position could not be considered incorrect or untenable. Therefore, the impugned order did not warrant interference through the exercise of writ jurisdiction.
Consequently, the Delhi High Court dismissed the writ petition. Further, expressing its displeasure with the petitioner’s conduct, the court imposed costs of ₹1 lakh, to be paid to the Delhi High Court Bar Association within two weeks. The court also directed that if the costs are not paid, Mr. Vishu Goyal, the Director of the Petitioner Firm, shall be personally present in court on the next listing date.
At this juncture, the petitioner’s counsel sought permission to withdraw the petition, but the court declined this request, citing “the nature of the matter.” However, the court clarified that the petitioner remained free to pursue other remedies available under law, such as filing a statutory appeal against the impugned order. The court listed the matter for reporting compliance on May 27, 2025, concerning the payment of costs. This judgment signals the High Court’s firm stance against what it perceives as attempts to use writ jurisdiction to circumvent accountability in cases of alleged large-scale GST fraud, especially when the petitioner’s own statements are contradictory.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This hearing has been done through hybrid mode.
CM APPL. 27487/2025 (for exemption)
2. Allowed, subject to all just exceptions. Application is disposed of.
W.P.(C) 6006/2025
3. The present petition has been filed by the Petitioner – M/s Mahesh Fabrinox Pvt. Ltd. (hereinafter “the Petitioner Firm”) under Articles 226 and 227 of the Constitution of India, challenging the Order-in-Original dated 1st February, 2025, passed by the Additional Commissioner, Central Goods and Services Tax (hereinafter “the impugned order”). Vide the impugned order a demand has been raised against the Petitioner Firm for fraudulent availment of Input Tax Credit (hereinafter “ITC”).
4. The grievance of the Petitioner Firm is that the reply was filed by the Petitioner Firm, however, the same was not considered and no personal hearing was given prior to passing of the impugned order. Ld. Counsel for the Petitioner Firm points out that in the said reply, it was clearly stated that in the year 2017-18, which is the relevant financial year, the Petitioner Firm had not even commenced its operations. Hence, there was no question of any supplies being taken from any other firm or entity in the said financial year.
5. This position is disputed by ld. Counsel for the Respondent, who submits that three hearing notices were issued to the Petitioner Firm for hearing on 27th November, 2024, 4th December, 2024 and 27th December, 2024,. However, the said hearings were not attended by the Petitioner Firm. In addition, it is submitted that prior to passing of the impugned order, the concerned authority had verified from the portal that no reply had been uploaded. In this regard the ld. Counsel has also handed over a screenshot of the portal taken prior to passing the impugned order.
6. Ld. Counsel for the Petitioner Firm has countered this position and has laid reliance on the Form GST DRC-06, attached with the petition, wherein it is reflected that the Petitioner personal hearing was requested.
7. Heard ld. Counsels for the parties.
8. The impugned order has been passed pursuant to the show cause notice dated 4th August, 2024. The allegation in the show cause notice and in the impugned order is that one Mr. Karan Kumar Agarwal had created a network of firms in order to fraudulently avail of ITC by paying commissions to such firms. It is alleged that invoices were purportedly fabricated and raised by the said firms without supply of any goods and on the strength of the said invoices, ITC was availed. The Petitioner Firm is one such firm which had raised invoices against one of the fake firms set up by Mr. Karan Kumar Agarwal and was passed on the benefit of ITC.
9. The Court has perused the reply of the Petitioner Firm. The stand of the Petitioner Firm in the said reply is that it has had no dealings with Mr. Karan Kumar Agarwal. The relevant portion of the said reply reads as under:
“Respected Officer,
We are in receipt of show cause notice inform No. CST DRC 01, dated 04/08/2024, issued under section 74 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the ‘CGST Act’) regarding availing of ineligible ITC on the strength of goods to the extent of Rs. 2,62,66,466/- (CGST Rs. 1,31,66,233/-SGST Rs. 1,31,66,233/-) and requiring us to show as to why interest U/s 50 of the ‘CGST Act’ and penalty under the provisions of section 74, 122(1)(ii), 122(1)(vii), 122(1)(x), 122(1)(xii) and 122(1)(xvi) of CGST Act, should not be imposed In this connection, it is respectfully submitted as under:
1. In the SCN at Table-I, a list of 14 concerns is mentioned which are alleged as registered and operated. by Sh. Karan Kumar Agarwal to avail and pass on ineligible ITC on the strength of invoices issued without actual supply of goods/services.
Further, at Table-2 of SCN, a detailed concern-wise list of various taxpayers who have availed ITC (recipients registered in the jurisdiction of Delhi West) on the basis of goodsless invoices from 14 firms being operated by Sh. Karan Kumar Agarwal, is given.
The name of our Company ‘Mahesh Fabrinox Private limited’ is appearing at Table-2 at page no. 3 of SCN and at Table 49 at page no. 149 of the SCN, where the Company is alleged to have taken in-eligible ITC on the basis of invoices issued by ‘M/S Jai Shri Banke Bihari Traders’ (07 AAQFJ5387F1ZV). In this connection it is respectfully submitted that:
Our Company was registered in GST w.e.f. 28/11/2017 and during the F/y 2017-18, the Company was not having trading and manufacturing activity. The manufacturing unit of the Campany at – KH No. 93/15, Gali No. 1, Mundka Industrial Area, South Side, New Delhi-110041, was under the process of installation and only machinery and other assets were being purchased. Therefore, question of purchasing goods from the parities mentioned in the SCN and availing ITC should not arise. Copy of summary of supply declared and ITC claimed along with copy of GSTR-2A is enclosed herewith. In view of this it is very kindly requested to please vacate the notice.
for Mahesh Fabrinox Private Limited.”
10. However, in contrast to this position, the impugned order records as under:
“b. In pursuance of summons dated 06.08.2022 voluntary statement of Sh. Vishu Goyal director in M/s Mahesh Fabrinox Private Limited was recorded where under he interalia stated that he had met Sh. Karan Kumar Agarwal once and he offered to supply him goods less invoices; that he agreed for the same and he used to pay him 6% of the total tax value against the said goods less invoices that they have received both types of consignments for certain invoices were received without goods whereas majority of invoices were received along with goods; that he was aware of the fact that purchasing goods less invoices is illegal under the GST Act however during the covid period, his business got down and to sustain the expenses he agreed to the offer of Sh. Karan Kumar Agarwal; that they have purchased total goods of value of Rs.13,84,56,745/- from M/s Jai Shree Banke Bihari Traders.”
11. A perusal of the reply and the statement of Mr. Vishu Goyal, Director of the Petitioner Firm shows that the stands taken in the same are completely at variance with each other. In the statement which was recorded pursuant to summons of 6th August, 2022 the Director of the Petitioner is stated to have clearly admitted that he knew Mr. Karan Kumar Agarwal and for fraudulent availing of the ITC, he was paid 6% commission. The said Mr. Goyal was also aware of the fact that goods-less invoices were being raised by the Petitioner Firm which is illegal.
12. On a query from the Court, ld. Counsel for the Petitioner admits that the statement of Mr. Goyal was recorded, by the Department.
13. The GST number of the Petitioner is also clearly set out in the impugned order. The impugned order also reveals a complex maze, which has been created by the main person e., Mr. Karan Kumar Agarwal, in order to avail fraudulent ITC by showing sale/purchase of goods, when actually in reality, there was no sale or purchase or movement of goods.
14. This Court in the present writ petition is exercising jurisdiction under Article 226 of the Constitution of India and when there is an allegation of such large-scale fraud, to the tune of more than Rs. 56.2 crores, being committed with the involvement of a total of 527 firms including the Petitioner Firm, the Court has to be circumspect in exercise of its powers.
15. This Court notices a pattern in which such persons, who had either availed of fraudulent ITC or have enabled the availment of fraudulent ITC repeatedly have challenged orders imposing penalty under Section 74 of the Central Goods and Services Act, 2017 before this Court, invoking the writ jurisdiction, on some technical grounds.
16. This Court also takes note, with some consternation, that such large scale fraudulent availment of ITC without actual passing of goods or services may, if left unchecked, can lead to severe damage to the GST framework itself, which is meant to encourage legally entitled persons and businesses to avail of ITC and other similar facilities such as drawbacks etc.
17. We are of the opinion that in such cases, so long as there is no violation of natural justice or jurisdictional error, writ jurisdiction ought not to be exercised, especially if the Petitioner has not come with clean hands. In the present case there is no infraction, as the show cause notice was duly issued to the Petitioner Firm and the personal hearing notices have also been provided.
18. There is also no arbitrary exercise of power by the Department, which would require exercising of writ jurisdiction. As is evident from the impugned order, various persons and entities including that of the Petitioner have either facilitated availment of or in fact availed ITC, by entering into arrangements with the main proponent – Mr. Karan Kumar Agarwal.
19. In these circumstances, having seen the hearing notices, the screenshot of the portal and the reply of the Petitioner Firm along with the statement of the Director of the Petitioner Firm, which is recorded in the impugned order, the Court is not inclined to entertain the present writ petition.
20. In the opinion of the Court, prima facie, considering the contradictory stand taken in the reply and the statement of the Petitioner’s Director, the stand of the Department cannot be held to be incorrect or untenable. The impugned order does no warrant interference by this Court, in exercise of writ jurisdiction.
21. In the facts and circumstances of this case, the present petition is dismissed with costs of Rs. 1 lakh to be paid to the Delhi High Court Bar Association within two weeks.
22. If the costs are not paid, Mr. Vishu Goyal, Director of the Petitioner Firm, shall remain present in the Court on the next date of hearing.
23. At this stage, ld. Counsel for the Petitioner Firm seeks permission to withdraw the present petition, which, this Court is not inclined to grant considering the nature of the matter. The Petitioner is however free to avail of its remedies in accordance with law, including by way of Appeal, if so available.
24. Pending application(s), if any, also stand disposed of.
25. List for reporting compliance on 27th May, 2025.
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