HC Relegates GST Fraud Case to Appeal, Citing Disputed Facts.

Issue

Can a High Court, in its writ jurisdiction, adjudicate a high-value GST demand that involves complex and disputed questions of fact (like the existence of suppliers and movement of goods), or must the taxpayer first exhaust the statutory appellate remedy, even if the appeal is time-barred?

Facts

• The petitioner, a steel scrap trader, was subjected to an audit for the period June 2017 to March 2022.
• This resulted in a series of assessments and rectification orders, culminating in a total demand of approximately ₹130.61 crores.
• The department’s case was that the petitioner had availed fraudulent Input Tax Credit (ITC) from non-existent entities, fabricated transactions using non-goods vehicle numbers, and failed to prove the movement of goods.
• The petitioner filed a writ petition challenging the entire proceeding, arguing on two fronts:
  1. Legal Grounds: The audit exceeded statutory time limits, and the extended period of limitation was wrongly invoked without any mala fide intent (fraud, suppression) being established.
  2. Factual Grounds: The petitioner disputed the department’s findings, claiming their suppliers were genuine and goods movement was valid.
• During the pendency of the writ petition, the petitioner deposited 10% of the disputed tax amount.

Decision

• The High Court did not entertain the writ petition on its merits and relegated the petitioner to the statutory appellate remedy.
• It held that the petitioner’s claims and the department’s counter-claims involved “disputed facts” that required a detailed “enquiry into documents and complicated facts.”
• The court ruled that such a factual investigation cannot be undertaken in its writ jurisdiction (under Article 226). The proper course is to file a statutory appeal.
• The court granted the petitioner three weeks to file the appeal.
• It was directed that the appellate authority must entertain the appeal on merits and not dismiss it as time-barred (the delay was condoned due to the pending writ).
• The 10% of disputed tax already paid by the petitioner was ordered to be treated as the statutory pre-deposit for the appeal, granting an automatic stay of recovery on the balance amount.

Key Takeaways

• Writ Court is Not for Factual Disputes: High Courts will not act as a primary fact-finding body. Complex, disputed facts (e.g., whether a supplier is “non-existent” or “goods movement” occurred) must be agitated before the statutory appellate authority.
• Alternate Remedy Rule: This case is a classic application of the “Rule of Alternate Remedy.” A taxpayer must first exhaust the appeal mechanisms provided in the GST Act before approaching the High Court, unless there is a fundamental breach of natural justice or a total lack of jurisdiction.
• Time Spent in Writ Condon’s Appeal Delay: The time a taxpayer spends in bona fide pursuit of a writ petition is a valid ground for the High Court to condone the delay in filing the statutory appeal.
• Deposits During Writ are Adjustable: Any amount paid by the taxpayer during the writ proceedings can be directed by the court to be treated as the mandatory pre-deposit, securing the taxpayer’s right to appeal and an automatic stay of recovery.