Facts of the Case

The petitioner, M/s RS Trading Co., filed a writ petition challenging the Show Cause Notice dated 31.03.2023 and the Order-in-Original dated 18.06.2025 passed by the Additional Commissioner, CGST North Delhi. By the impugned Order-in-Original, the adjudicating authority confirmed a demand of Input Tax Credit amounting to ₹6,27,82,280 under Section 74(1) of the CGST/SGST Act read with Section 20 of the IGST Act, along with interest under Section 50, penalty equivalent to the tax amount under Section 74(1), additional penalty under Section 122(1)(ii), and a further penalty of ₹10,000 under Section 122(1)(x).

The Department’s case was that the petitioner fraudulently availed and passed on ineligible ITC on the strength of fake invoices issued by 17 non-existent and bogus supplier firms whose GST registrations were subsequently cancelled. Searches were conducted at the petitioner’s premises, and statements of the proprietor, Mr. Manish Kumar, were recorded. In his statement, the proprietor admitted lack of knowledge of the suppliers and reliance on brokers. Some statements were later retracted. The proprietor was arrested on 04.03.2021 under Section 69 of the CGST Act for offences under Sections 132(1)(b) and 132(1)(c). The petitioner’s GST registration was obtained on 06.07.2019, and the alleged transactions pertained to FYs 2019–20 and 2020–21, after which business operations ceased.

Issues Involved

Whether the High Court should exercise writ jurisdiction in a case involving serious allegations of fraudulent availment of ITC and fake invoices, whether the impugned Order-in-Original warranted interference despite availability of an efficacious appellate remedy under Section 107 of the CGST Act, and whether the petitioner deserved protection on limitation to file a statutory appeal.

Petitioner’s Arguments

The petitioner submitted that it was not in a position to make the statutory pre-deposit for filing an appeal. Reliance was placed on CBIC Circular dated 06.07.2022 titled “Clarification on various issues relating to applicability of demand and penalty provisions under the CGST Act in respect of transactions involving fake invoices”, contending that in cases like the petitioner’s, tax demand should not have been raised and only penalty could have been imposed. It was argued that the impugned Order-in-Original was therefore unsustainable and deserved to be set aside in writ jurisdiction.

Respondent’s Arguments

The Revenue argued that the impugned Order-in-Original was appealable under Section 107 of the CGST Act and that the writ petition was not maintainable. It was contended that the allegations involved large-scale fraudulent ITC, fake and non-existent suppliers, and required detailed factual examination by the appellate authority. The Department opposed bypassing the statutory appellate mechanism.

Court Order / Findings

The Delhi High Court observed that the petitioner’s GST registration was valid for less than two financial years and that the entire pattern of transactions occurred shortly thereafter, lending credence to the Department’s allegation that the petitioner was set up primarily to pass on fraudulent ITC. The Court noted that the reply filed to the Show Cause Notice did not inspire confidence at the writ stage.

The Court held that the impugned Order-in-Original is clearly appealable under Section 107 of the CGST Act and that disputes involving fraudulent ITC, fake invoices and appreciation of evidence cannot be adjudicated in writ jurisdiction. The Court declined to examine the applicability of the CBIC Circular dated 06.07.2022 at this stage, holding that such issues are to be considered by the appellate authority.

However, considering that the writ petition itself was filed within the limitation period prescribed under Section 107, the Court granted the petitioner protection on limitation and permitted filing of a statutory appeal beyond the normal period.

Important Clarification

The High Court clarified that inability to make pre-deposit or reliance on circulars does not justify bypassing the statutory appellate remedy in cases involving fraudulent ITC. All issues on facts and law, including applicability of the CBIC Circular dated 06.07.2022, were left open to be urged before the appellate authority.

Final Outcome

The writ petition was disposed of. The petitioner was granted liberty to file an appeal under Section 107 of the CGST Act against the Order-in-Original dated 18.06.2025 on or before 15.12.2025, along with the requisite pre-deposit. The appellate authority was directed to adjudicate the appeal on merits and not to treat it as barred by limitation. Pending applications, if any, were disposed of accordingly.

Source Link- https://delhihighcourt.nic.in/app/showFileJudgment/PMS25092025CW149182025_163010.pdf

 

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