Invocation of writ jurisdiction restricted by Delhi HC when allegation raised regarding fraudulent availment of ITC
Summary: The Delhi High Court has dismissed a writ petition filed by M/s. Mahesh Fabrinox Pvt. Ltd. v. Union of India [W.P.(C) 6006 of 2025, dated May 06, 2025] concerning allegations of fraudulent Input Tax Credit (ITC) availment. The court significantly restricted the invocation of writ jurisdiction in such matters, particularly when petitioners are not approaching with “clean hands” or where no clear violation of natural justice or jurisdictional error is evident. The petitioner had challenged an Order-in-Original dated February 01, 2025, which raised a demand for fraudulent ITC. M/s. Mahesh Fabrinox Pvt. Ltd. claimed that their reply was not considered and no personal hearing was granted before the order was passed. They also contended that their firm had not commenced operations in the 2017-18 financial year, making the alleged supplies impossible. Conversely, the Respondent, the Additional Commissioner, Central Goods and Services Tax, submitted that three hearing notices were issued to the petitioner, none of which were attended. Furthermore, the authorities verified from the GST portal that no reply had been uploaded prior to passing the impugned order. The court observed a discrepancy between the petitioner’s written reply and a statement recorded from the Petitioner Director, where fraudulent ITC passing was admitted. The High Court noted a pattern of challenging Section 74 CGST Act orders (relating to fraudulent ITC) via writ petitions. It opined that widespread fraudulent ITC availment could severely damage the GST framework. The court held that unless there is a clear infraction of natural justice or a jurisdictional error, writ jurisdiction should not be exercised, especially when the petitioner’s conduct is questionable. Finding no such infractions in this case, as a Show Cause Notice and personal hearing notices were duly issued, the writ petition was dismissed with costs of INR One Lakh. No specific judicial precedents were explicitly referenced in the provided text of this judgment.
Facts:
M/s Mahesh Fabrinox Pvt. Ltd. (“the Petitioner”) has filed the writ petition against the Order-in-Original dated February 01, 2025 (“the Impugned Order”), passed by the Additional Commissioner, Central Goods and Services Tax (“the Respondent”). In the Impugned Order issued, the demand has been raised against the Petitioner for fraudulent availment of Input Tax Credit (“ITC”).
The Petitioner submitted that the reply was filed by the Petitioner, however, the same was not considered and no personal hearing was given prior to passing of the Impugned Order. Further, the Petitioner points out that in the said reply, it was clearly stated that in the year 2017-18, 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.
Whereas the Respondent submits that three hearing notices were issued to the Petitioner for hearing. However, the said hearings were not attended by the Petitioner. 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 Petitioner has also handed over a screenshot of the portal taken prior to passing the impugned order.
Issue:
Whether writ jurisdiction is to be invoked in cases where the allegation relates to fraudulent availment of ITC?
Held:
The Hon’ble Delhi High Court in W.P.(C) 6006 of 2025 held as under:
- Observed that, the Impugned Order has been passed pursuant to the SCN dated August 04, 2024. The allegation in SCN and in the Impugned Order is that 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 Company is one of the suppliers who has raised such invoices without any underlying supply of goods and has fraudulently passed on the benefit of ITC.
- Further observed that, there is discrepancy in the stand taken by the Petitioner Director in its reply filed and the statement of the Petitioner recorded as in the statement it has been admitted by the Petitioner Director that there is fraudulent passing off of ITC.
- Noted that, there is a pattern arising in such cases where the Order passed under Section 74 of the CGST Act, relating to fraudulent ITC or have enabled the availment of fraudulent ITC, is being challenged by way of invoking writ jurisdiction before the Hon’ble High Court.
- Further Noted that, 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.
- Opined that, in such cases, so long as there is no violation of natural justice or jurisdictional error, writ jurisdiction should not be exercised, especially if the Petitioner has not come with clean hands.
- Further Opined that, in the present case, there is no infraction, as the SCN was duly issued to the Petitioner and the personal hearing notices have also been provided.
- Held that, the writ petition be dismissed with cost of INR One Lakh.
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