Freight forwarder must exhaust statutory remedies and cooperate with EOW in massive GST fraud case

Freight forwarder must exhaust statutory remedies and cooperate with EOW in massive GST fraud case

Issue

Whether the High Court should intervene in the provisional attachment of bank accounts under writ jurisdiction when the petitioner is implicated in a massive GST fraud involving misused officer credentials, or if the petitioner must first exhaust the statutory remedy under Rule 159(5) of the CGST Rules.

Facts

• Petitioner’s Business: The petitioner is a freight-forwarding partnership firm that challenged the provisional attachment of its bank accounts.

• Jurisdictional Challenge: The firm argued that the attachment order was issued by a non-jurisdictional GST officer.

• Allegations of Fraud: Authorities alleged the firm was connected to entities involved in a large-scale fraudulent GST refund scheme.

• The Scheme: The fraud, amounting to ₹65 crore, was allegedly executed by misusing a GST officer’s login credentials. The petitioner allegedly benefitted by approximately ₹95 lakh.

• Suspicious Financials: During proceedings, the Court expressed shock when the partner admitted the firm recorded a turnover of ₹100 crore within a year while employing only 5 people.

• Non-Cooperation: The Revenue submitted an affidavit showing the partner had repeatedly ignored summons from both the Economic Offences Wing (EOW) and GST authorities.

Decision

• Judicial Observation: The Court remarked that the firm appeared to be abusing statutory GST benefits given the disproportionate turnover-to-employee ratio.

• Impleadment of Agency: Due to the gravity of the offense (misuse of officer credentials), the Court temporarily impleaded the Economic Offences Wing (EOW).

• Directive on Remedy: As the assessee expressed willingness to pursue the statutory remedy, the Court directed them to file objections under Rule 159(5) of the CGST Rules rather than deciding the validity of the attachment in the writ petition.

• Mandatory Cooperation: The Court disposed of the petition with a strict direction to the assessee to reveal all bank account details and fully cooperate with both EOW and GST investigators.

• Liberty to Revenue: Liberty was granted to the government to approach the Court again if the assessee continued to be non-compliant.

Key Takeaways

Red Flags in Analytics: A turnover of ₹100 crore with only 5 employees is a significant “red flag” that courts take judicial notice of as indicia of fake billing or circular trading.

Exhaustion of Remedies: Even in cases of alleged jurisdictional error regarding provisional attachment, High Courts often relegate the assessee to the specific statutory remedy provided under Rule 159(5) (filing objections with the Commissioner) before entertaining a writ.

Inter-Agency Coordination: In cases involving criminal elements (like hacking/misusing officer credentials), Tax Courts will facilitate coordination with criminal investigation agencies (EOW) to ensure a holistic investigation.