HC Relegates Fraudulent ITC Case to Appeal; Grants Fresh Window to File.

Issue

Can a High Court entertain a writ petition against a GST demand order involving allegations of fraudulent Input Tax Cax (ITC), especially after the taxpayer has already missed the statutory deadline to file an appeal under Section 107?

Facts

The department alleged that the petitioner (a proprietorship) had fraudulently availed ITC from 17 non-existent suppliers whose registrations had been cancelled.
Searches were conducted, and the proprietor was arrested, which led to the complete discontinuation of their business operations.
An Order-in-Original was passed by the Additional Commissioner, confirming the fraudulent ITC along with interest and penalties.
The petitioner did not file a statutory appeal under Section 107 within the prescribed time limit.
Instead, after the appeal deadline had expired, the petitioner filed a writ petition directly in the High Court to challenge the order.

Decision

The High Court dismissed the writ petition, holding that it could not be entertained.
It ruled that the impugned order was an appealable order under Section 107, and the petitioner was required to avail this statutory appellate remedy.
However, recognizing that the time limit for the appeal had expired, the court used its writ jurisdiction to grant liberty to the assessee to file the appeal by a new, fixed deadline (15-12-2025).
This direction effectively condoned the delay, ensuring the appeal would be heard on its merits (subject to the requisite pre-deposit).

Key Takeaways

Writ Court is Not for Factual Disputes: High Courts are generally reluctant to entertain writ petitions in cases involving serious allegations of fraud (like fake ITC from non-existent suppliers), as these require detailed factual investigation, which is the job of the appellate authority.
Alternate Remedy Rule: The court reinforced the “Rule of Alternate Remedy,” directing the taxpayer to exhaust the statutory appeal process first.
Writ Power to Condon Delay: The most significant takeaway is that a High Court can use its extraordinary writ power to grant a taxpayer a fresh opportunity to file an appeal, even after the statutory deadline under Section 107 has passed, thereby ensuring justice is not denied on a technicality of limitation.
No Excuse to Bypass Appeal: Even severe circumstances like the arrest of the proprietor and the discontinuation of the business were not accepted as valid reasons to bypass the statutory appeal mechanism.

HIGH COURT OF DELHI

MS RS Trading Co

Principal Commissioner of CGST

PRATHIBA M. SINGH and SHAIL JAIN, JJ.

W.P.(C) No. 14918 OF 2025

SEPTEMBER 25, 2025

Abhas Mishra, Adv. for the Petitioner. Shashank Sharma, SSC and Ms. Malika Kumari, Adv. for the Respondent.

ORDER

Prathiba M. Singh, J.- This hearing has been done through hybrid mode.

CM APPL. 61369/2025

2. Allowed, subject to all just exceptions. The application is disposed of.

W.P.(C) 14918/2025

3. The present petition has been filed by the Petitioner under Article 226 of the Constitution of India, inter alia, challenging the impugned Order-in-Original dated 18th June, 2025 passed by the Additional Commissioner, CGST, North Delhi (hereinafter ‘impugned OIO’). The Petitioner also challenges the impugned Show Cause Notice dated 31st March, 2023 (hereinafter ‘impugned SCN’).

4. Vide the impugned OIO, a demand to the following effect has been raised against the Petitioner:

“31. In view of the above discussions and findings, I pass the order as under:

ORDER

A. Demand/penalty in r/o Noticee No-01 (M/s RS Trading).

i. I confirm the demand of Input Tax Credit amounting to Rs. 6,27,82,280/- (Rupees Six Crore Twenty-Seven Lakh Eighty-Two Thousand Two Hundred Eighty only) under Section 74(1) of the CGST/SGST Act, 2017 read with Section 20 of the IGST Act, 2017 and order to recover the same from them;

ii. I confirm the demand of Interest under Section 50 of the CGST/SGST Act, 2017 read with Section 20 of the IGST Act, 2017, on the amount of demand confirmed at (above and order to recover the same from them;

iii. I impose penalty equivalent to the amount of demand confirmed at (i) above, upon Noticee No. 1 under Section 74(1) of the CGST/SGST Act, 2017 read with Section 20 of the IGST Act, 2017 and order to recover the same from them.

iv. I impose penalty equivalent to the total amount of ITC fraudulently availed and passed-on as detailed in Column (4) in Table-II below, upon Noticee No. 01 under Section 122(1)(ii) of the CGST/SGST Act, 2017 read with Section 20 of the IGST Act, 2017 and order to recover the same from them; and

V, I impose penalty of Rs. 10,000/-, upon Noticee No. 01 for violation of Section 122(1)(x) of the CGST/SGST Act, 2017 read with Section 20 of the IGST Act, 2017 and order to recover the same from them.”

5. The GST Department’s case against the Petitioner is that various nonexisting units had passed on Input Tax Credit (hereinafter ‘ITC’) to the Petitioner, and the main person who was found to be involved in the case is Mr. Manish Kumar, who was the proprietor of the Petitioner (hereinafter ‘proprietor’).

6. GST Department conducted searches at the Petitioner’s residential and office premises. The statement of the proprietor was also recorded. Thereafter, statements of various third parties have also been recorded. In his statement, the Proprietor has, in fact, admitted that he did not know any persons in these firms, and that he used brokers to conduct the said business. Some of the statements were in fact subsequently retracted by the proprietor, and he was also arrested, as he was unable to deposit the evaded GST liability as well.

7. The proprietor was arrested on 4^th March 2021, under Section 69 of the Central Goods and Service Tax Act, 2017 (hereinafter ‘the Act’) for allegedly committing offences under Section 132(1)(b) and 132(1)(c) of the Act.

8. As per the impugned OIO, the Petitioner was found to be engaged in fraudulent availment of ineligible ITC on the strength of fake and bogus invoices from non-existing suppliers. The entire investigation was done against 17 firms, which were completely fake and non-existent. These firms were suppliers of the Petitioner, who were all found to be non-existent and whose GST registrations were cancelled. The total ITC availed by the Petitioner is to the tune of Rs.7,96,55,413/-.

9. Ld. Counsel for the Petitioner submits that the Petitioner is not in a position to make the pre-deposit. Further, ld. Counsel for the Petitioner places reliance upon circular dated 6th July, 2022 issued by Central Board of Indirect Taxes and Customs, titled ‘Clarification on various issues relating to applicability of demand and penalty provisions under the Central Goods and Services Tax Act, 2017 in respect of transactions involving fake invoices’ (hereinafter ‘circular dated 6th July 2022). It is submitted that as per the circular dated 6th July 2022, no tax demand could have been imposed upon the Petitioner, and only penalty could have been demanded.

10. Ld. Counsel for the Respondent, on the other hand, submits that the impugned OIO is an appealable order, and the Petitioner ought to be relegated to the appellate remedy.

11. The Court has considered the matter. It is pertinent to note that Petitioner got its GST registration only on 6^th July 2019, and that the entirety of the suspicious transactions took place during the financial years 2019-20 and 2020-21. It is further noted that immediately thereafter, upon the arrest of the Petitioner, the business operations of the Petitioner were also discontinued. Thus, there is some basis for the GST Department to argue that the Petitioner itself was incorporated to pass on fraudulent ITC, in an illegal and unlawful manner as the Petitioner’s GST registration was alive for less than two Financial years.

12. The Court has also perused the reply filed by the Petitioner to the impugned SCN. However, the same does not inspire any confidence at this stage.

13. In any case, since the impugned OIO is an appealable order under Section 107 of the Act, the Court is of the opinion that an appeal ought to be filed by the Petitioner, along with the requisite pre-deposit.

14. The present writ petition was filed within the period of limitation prescribed under Section 107 of the Act. Now, even the period of limitation for filing the appeal has expired. Since the petition was filed within the period of limitation, the Petitioner is permitted to file the appeal by 15^th December 2025, along with the requisite pre-deposit.

15. If the Appeal is filed by the Petitioner within the stipulated time, it shall be adjudicated on merits and shall not be treated as barred by limitation.

16. Accordingly, the present petition is disposed of in above terms. Pending applications, if any, are also disposed of.