Writ Petition Against Section 74 Demand Dismissed: Fraudulent ITC Allegations Fall Squarely Under Section 74

Writ Petition Against Section 74 Demand Dismissed: Fraudulent ITC Allegations Fall Squarely Under Section 74

Issue: Whether a High Court, in its writ jurisdiction, should intervene to quash a demand and penalty order issued under Section 74 of the CGST Act (involving fraud) for fraudulent ITC availment through fake firms, when the assessee’s challenge primarily involves factual disputes and the contention that Section 74 was wrongly invoked despite the availability of evidence.

Facts:

• The petitioner, a trader of heavy metals, had its GST registration cancelled based on its own application.
• A show cause notice (SCN) was subsequently issued to the petitioner under Section 74 of the CGST Act.
• The allegations were that information indicated the proprietor of the petitioner was involved in creating “fake firms,” which were used for the availment and passing on of fraudulent Input Tax Credit (ITC) to various end-users without any actual supply of goods or services.
• The petitioner filed a response denying these allegations.
• The adjudicating authority did not accept the petitioner’s pleas and consequently raised a demand.
• In the writ petition, the petitioner argued that the respondents were not justified in invoking Section 74, claiming that all evidence was already available with the authorities. They also tried to establish that the findings in the order were erroneous and required High Court interference.

Decision: The writ petition was dismissed. The court held that in a case of this nature, where allegations pertain to fraudulent availment of ITC based on supplies from non-existent firms and without receiving any actual supply, the plea would always fall within the parameters of Section 74, as it would be “input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts.” The argument that Section 74 would not apply because the “fake supplies” were somehow “disclosed” was deemed “totally baseless.” The court further stated that all pleas raised and replies to the SCN had been dealt with by the adjudicating authority, and the challenge laid to those findings was purely factual, not falling under the parameters where petitions under Article 226 of the Constitution could be entertained by the Supreme Court. The decision was in favor of the revenue.

Key Takeaways:

• Fraudulent ITC Squarely Under Section 74: The court clearly affirmed that allegations of fraudulent ITC availment based on fake firms and goods-less invoices unequivocally fall within the ambit of Section 74. The phrase “input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts” directly covers such scenarios.
• “Disclosure” of Fake Supplies is Baseless: The assessee’s attempt to argue that Section 74 doesn’t apply because the “fake supplies” were somehow disclosed was rejected. The very nature of “fake supplies” implies an intent to defraud or suppress, making such a disclosure argument illogical.
• Writ Jurisdiction for Factual Disputes (Limited Scope): This case reinforces the established principle that High Courts, in writ jurisdiction, do not typically sit as appellate authorities to re-examine factual findings made by adjudicating authorities. The petitioner’s arguments challenging the correctness of the findings were deemed factual.
• Adherence to Supreme Court Guidelines for Writ Intervention: The court referred to parameters laid down by the Supreme Court for entertaining writ petitions under Article 226, implying that the assessee’s case did not meet those high thresholds for direct interference.
• Availability of Statutory Appellate Remedy: The underlying premise, though not explicitly stated as the sole reason for dismissal, is that the assessee should avail the statutory appellate remedies provided under the GST Act (e.g., appeal to the Commissioner (Appeals) under Section 107) to challenge factual findings and legal interpretations, rather than directly approaching the High Court.
• Gravity of Allegations: The court implicitly recognized the serious nature of the allegations involving the creation of fake firms and fraudulent ITC, suggesting that such matters warrant thorough adjudication through the prescribed legal channels.