Tax Authorities May Skip Pre-SCN Consultation In Large GST Fraud Cases Involving Multiple Entities And A Complex Maze Of High-Value Transactions: Delhi High Court
Isabella Mariam
The High Court of Delhi Division Bench of Justice Prathiba M. Singh and Justice Renu Bhatnagar dismissed a writ petition challenging a demand raised for alleged fraudulent availment and passing on of input tax credit under the GST regime, while permitting the taxpayer to pursue the statutory appellate remedy. The Court noted that pre-show cause consultation, earlier framed as mandatory under Rule 142(1A) of the GST Rules, 2017, became discretionary after a 2022 notification replaced the word “shall” with “may”, and therefore non-issuance of a pre-SCN consultative notice did not vitiate the proceedings. Observing that such consultation prima facie serves no purpose in large-scale GST fraud cases involving multiple entities and complex transaction structures, the Court declined to interfere with the order-in-original or the governing notification.
The petition challenged an Order-in-Original dated 22 October 2025 confirming a demand of Rs. 9,60,15,714/- against the petitioner for alleged passing on and availing of fake input tax credit. The petition contained allegations against an individual stated to have incorporated several non-existent firms. Searches were conducted at various premises connected to him, who was also a partner of the petitioner. The Order-in-Original detailed the factual background, including how credit was availed and passed on, and raised tax, interest and penalty demands against multiple noticees.
The petitioner argued that the impugned show cause notice dated 12 March 2025 was invalid due to absence of a pre-SCN consultative notice under Rule 142(1A) of the GST Rules and that this contention had not been considered in the order. A constitutional challenge was also raised to Notification No. 79/2022-Central Tax, which amended Rule 142(1A) by replacing “shall” with “may”.
The respondents submitted that the matter related to fraudulent credit and that writ jurisdiction could not be invoked, relying on previous decisions, including one concerning the amended Rule 142(1A). It was further stated that the obligation of pre-SCN consultation was not mandatory after the amendment and that a coordinate bench had already addressed this issue.
The Court recorded that Rule 142(1A) as amended reads: “The proper officer may before service of Notice to the person chargeable with tax, interest and penalty… communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.” It noted that the amended provision came into effect on 15 October 2020 and contrasted it with the earlier version which used the term “shall”. The Court referred to Gulati Enterprises, noting that the decision distinguished between the pre- and post-amendment regimes. The Court further stated that in Banson Enterprises, “after the change, which has been brought about, the issuance of pre-SCN consultation notice would not be mandatory.”
It recorded that in cases involving large-scale fraudulent availment of credit, “pre-SCN consultation notice may also have no impact.” The Court stated that “in such complex maze of transactions involving multiple parties, worth crores of rupees, pre-consultation would be meaningless due to the nature of the issues involved.” It further recorded that even during searches, parties “can always tender the illegally obtained amounts, but they do not do so usually.”
The Court also noted that the challenge to Notification No. 79/2022-Central Tax was already pending and that the show cause notice in the present case was issued after the notification came into force. It observed that the petitioner had deposited Rs. 1.66 crore during investigation, which could be adjusted toward pre-deposit. Upon considering the submissions, the Court stated that it was “not inclined to entertain the present writ petition.”
The Court recorded that “under such circumstances, the Court is not inclined to entertain the present writ petition.” It then issued the following directions.
“Insofar as the Petitioner is concerned, the limitation period has also yet not expired.” It directed that “accordingly, the Petitioner is free to avail of its appellate remedy under Section 107 of the CGST Act. insofar as the challenge to the Notification No.79/2022-Central Tax is concerned, the decision in W.P.(C) 17220/2025 titled Zeta International v. The Additional Director would bind the further proceedings in the appeal and thereafter.”
"The observations made herein would not have any bearing on merits. The petition is disposed of in the above terms. All pending applications are also disposed of.”
Advocates Representing The Parties
For the Petitioners: Mr. Chinmaya Seth, Mr. A.K. Seth, Ms. Palak Mathur, Advocates.
For the Respondents: Ms. Nancy Jain, Advocate; Ms. Alpana Pandey, Advocate
Case Title: Manpar Exim Inc v. Additional Director, DGGI & Ors
Neutral Citation: 2025: DHC:10737-DB
Case Number: W.P.(C) 18204/2025
Bench: Justice Prathiba M. Singh and Justice Renu Bhatnagar
