Writ Jurisdiction Declined for Fraudulent ITC Demand; Petitioner Relegated to Statutory Appeal

Writ Jurisdiction Declined for Fraudulent ITC Demand; Petitioner Relegated to Statutory Appeal

Issue

Whether a writ petition under Article 226 is maintainable to challenge an Order-in-Original (OIO) confirming a GST demand based on allegations of fraudulent Input Tax Credit (ITC) and fake invoicing, involving complex disputed facts, or if the petitioner must exhaust the alternative statutory remedy of appeal.

Facts

• The Investigation: The DGGI, Gurugram, initiated proceedings based on intelligence regarding fraudulent ITC availment by exporters. The investigation covered the petitioner, VMG Foods (P.) Ltd.

• The Allegation: The petitioner allegedly issued invoices to a non-existent entity (M/s SM Enterprises), enabling a wrongful ITC claim of approximately ₹89 lakh.

• Evidence: During the search, the petitioner’s authorized representative admitted to issuing invoices to M/s SM Enterprises while physically delivering the goods to different locations (a classic sign of “bill trading”).

• The Order: Following a Show Cause Notice (SCN), the Adjudicating Authority passed an Order-in-Original confirming the demand for CGST and SGST, along with interest and an equivalent penalty. The demand was uploaded in Form DRC-07.

• The Challenge: The petitioner filed a writ petition challenging the SCN, the Order-in-Original, and the DRC-07 demand, bypassing the appellate authority.

Decision

• The Delhi High Court disposed of the writ petition, declining to entertain it on merits.

• Writ Not Suitable for Factual Disputes: The Court held that cases involving fraudulent ITC or GST evasion typically revolve on complex disputed facts and evidentiary analysis (e.g., movement of goods, existence of suppliers). Such matters are best adjudicated by the statutory appellate authority, not by a writ court.

• Alternate Remedy Rule: The Court reiterated that writ jurisdiction is an extraordinary remedy, generally available only when there is a breach of fundamental rights, violation of natural justice, or lack of jurisdiction. Since these exceptions were not established, the petitioner must follow the statutory route.

• Relief on Limitation: To ensure the petitioner is not left remediless due to the time spent in court, the High Court granted liberty to file a statutory appeal by 30-11-2025.

  • Condition: The petitioner must pay the mandatory pre-deposit.

  • Protection: If filed by this date, the appeal shall not be treated as time-barred and must be decided on merits.

Key Takeaways

• • Fraud Allegations = Statutory Appeal: High Courts are increasingly refusing to entertain writ petitions in cases of “fake invoicing” or “circular trading,” pushing taxpayers to the First Appellate Authority to prove their factual innocence.

  • Admission is Damning: The admission by the authorized representative regarding the discrepancy in delivery locations significantly weakened the case for writ intervention, framing it as a clear factual dispute.

  • Safe Harbor for Limitation: Filing a writ petition can sometimes “stop the clock” on limitation. Courts often grant a fresh window to file an appeal if they dismiss the writ on grounds of maintainability rather than merits.

  • Pre-Deposit is Mandatory: The taxpayer cannot escape the 10% pre-deposit requirement by approaching the High Court; they must pay it to have their appeal heard.