Courts Must Consider Burden On State Exchequer And Balance It Against Interest Of Party In ITC Fraud Matters: Delhi High Court Dismisses Writ, Directs Statutory Appeal
Sanchayita Lahkar
The High Court of Delhi Division Bench of Justice Prathiba M. Singh and Justice Shail Jain held that, in matters concerning alleged fraudulent availment of input tax credit, courts are required to balance the interests of the trader with the impact that tax evasion imposes on the State exchequer. In the present case, the Court declined to exercise writ jurisdiction and directed the petitioner to pursue the statutory appellate mechanism under the CGST Act. The dispute arose from departmental findings indicating that multiple non-existent entities had generated and passed on substantial input tax credit, leading to a demand against the petitioner. The Court concluded that such issues involve factual scrutiny better suited to the appellate forum and permitted the petitioner to file an appeal with the mandated pre-deposit within the prescribed period.
The matter concerns a petition filed under Article 226 challenging the Order-in-Original dated 28 January 2025 issued by the Office of the Principal Commissioner of Central GST, Delhi North, which raised a demand of ₹9,81,070 against the petitioner. The petitioner asserted that no personal hearing had been granted and alleged violation of principles of natural justice.
The dispute arose from an investigation relating to alleged fraudulent availment of Input Tax Credit. The record shows that the Department initiated an inquiry into 16 taxpayers who had reportedly transferred substantial ITC through GSTR filings, despite there being “hardly any inward ITC from their declared suppliers.” The Department suspected that these 16 firms did not exist. An analysis of outward supplies in GSTR-1M filed by 72 previously found non-existent firms and seven additional firms revealed transfers of more than ₹122 crores of ITC to 1155 taxpayers.
Following this, notices were issued by the CGST Delhi North Commissionerate to 1155 recipients linked to 79 fake entities. Some entities made payments totalling approximately ₹5.24 crores. The petitioner appeared at serial number 211 in the impugned order with liability assessed at ₹9,81,072.
The petitioner filed replies to notices but primarily asserted non-supply of relied-upon documents. The petition did not advance contentions on the merits of allegations or provide factual rebuttal to the Department’s findings. The statutory framework invoked in the impugned action includes provisions of the CGST Act, 2017 governing ITC, departmental investigations, and appellate remedies available under Section 107.
The Court \ observed that “in cases involving fraudulent availment of ITC…there are complex transactions involved which require factual analysis and consideration of voluminous evidence, as also the detailed orders passed after investigation. In such cases, it would be necessary to consider the burden on the exchequer as also the nature of impact on the GST regime, and balance the same against the interest of the Petitioners, which is secured by availing the right to statutory appeal.”
The Bench referred to the Supreme Court’s judgment in Commercial Steel Limited, quoting that writ jurisdiction may be invoked only in exceptional circumstances such as “a breach of fundamental rights,” “a violation of principles of natural justice,” “an excess of jurisdiction,” or “a challenge to the vires of the statute.” It further quoted that in similar matters, “the assessment of facts would have to be carried out by the appellate authority.”
The Court also cited its earlier decisions, noting the judicial position that fraudulent ITC cases involve “a complex maze of transactions” and that misuse of ITC “would create an enormous dent in the GST regime itself.” It recorded that the facility of ITC under Section 16 of the CGST Act “has been misused by various individuals, firms, entities and companies” and that adjudication of such disputes requires factual determination not suited to writ jurisdiction.
Quoting prior judgements, the Court stated that writ jurisdiction “ought not be exercised… to support unscrupulous litigants” and that persons engaged in such transactions “cannot be allowed to try different remedies before different forums,” since doing so may result in multiplicity of proceedings and contradictory findings.
The Court observed that the impugned order was appealable and that one co-noticee had already availed the statutory remedy. It recorded that the petitioner had received several notices and filed a reply, but “the only ground taken is that the RUDs have not been supplied and there is no stand taken by the Petitioner on merits.”
The Bench concluded that the writ court cannot “ascertain the factual aspects pertaining to what was the role played by the Petitioner, whether the penalty imposed is justified or not,” because such matters must be examined by the appellate authority under Section 107.
The Court recorded that it was “not inclined to entertain the present writ petition. The Petitioner was well aware of several notices, which were issued and the reply was duly filed by the Petitioner. Even in reply, the only ground taken is that the RUDs have not been supplied and there is no stand taken by the Petitioner on merits.”
The Bench stated that it was “inclined to relegate the Petitioner to avail of appellate remedy under Section 107 of the Central Goods and Service Tax Act, 2017. The appeal may be filed by the Petitioner by 30th November, 2025 along with the requisite pre-deposit.”
“If the same is filed by the said date, the appeal shall be entertained on merits and shall not be dismissed being barred by limitation. The petition is disposed of in the above terms. All pending applications are also disposed of.”
Advocates Representing The Parties
For the Petitioner: Mr. A.K. Babbar, Advocate; Mr. B.K. Tripathi, Advocate
For the Respondents: Mr. Shashank Sharma, Senior Standing Counsel with Ms. Malika Kumari, Advocate; Ms. Vaishali Gupta, Panel Counsel (Civil), GNCTD
Case Title: Toshniwal Electricals Pvt. Ltd. v. Principal Commissioner of Central Tax Delhi North & Ors.
Neutral Citation: 2025: DHC:9606-DB
Case Number: W.P.(C) 16455/2025
Bench: Justice Prathiba M. Singh, Justice Shail Jain
