Sheetal And Sons Vs Union of India & Anr. (Delhi High Court)

The Delhi High Court in Sheetal and Sons v. Union of India & Anr. (2025) addressed writ petitions challenging an Order-in-Original (OIO) issued under Sections 74 and 122 of the Central Goods and Services Tax Act, 2017 (CGST Act) concerning alleged fraudulent availment of Input Tax Credit (ITC) by trading firms. The petitions were filed by M/s Sheetal & Sons and M/s Vikas Traders, both managed by Mr. Sunny Jagga, against the imposition of tax demands and penalties pursuant to a Show Cause Notice (SCN) dated 24 May 2022.BackgroundThe Directorate General of GST Intelligence (DGGI) initiated an investigation into a network of firms allegedly generating fake invoices to fraudulently claim ITC without actual supply of goods. The firms under scrutiny included M/s S R Impex, M/s S R International, M/s R K Enterprises, M/s Vikas Impacts, and M/s SK Traders. The amount of ITC claimed fraudulently by these firms ranged from ₹2.82 crores to ₹50.66 crores.In their statements before the Department, the petitioners acknowledged operating the two firms and managing day-to-day operations. They described themselves as traders of dry fruits, importing items like almonds, walnuts, and cloves for domestic sale. Mr. Jagga admitted issuing invoices to certain firms, including M/s Om Traders, M/s A.R. Traders, and M/s A.S. Traders, as per instructions from one Mr. Gopal Sharma, without personally visiting or verifying the premises of these firms. Subsequent DGGI investigation revealed these entities were non-existent. Mr. Jagga claimed he trusted Mr. Sharma and was unaware that the invoices were directed to fake entities.The SCN and the OIO raised demands for recovery of taxes and imposed penalties on the petitioners based on these transactions.Petitioners’ ContentionsThe petitioners primarily contended that:1. No personal hearing was granted before passing the OIO.2. The imposition of tax and penalty was arbitrary and lacked basis.3. Errors in uploading dates and procedural discrepancies further questioned the validity of the OIO.The petitioners argued that they were operating bona fide business activities and were misled by third parties.Respondent’s SubmissionThe respondents, represented by the Senior Standing Counsel, argued that:1. The SCN and all Relied Upon Documents (RUDs) exceeding 189 pages were duly served to the petitioners via email at the address provided (dryfruits@gmail.com).2. Personal hearings were scheduled multiple times (14, 15, 17, 20, 21 January 2025) and notices were duly recorded in the OIO (paragraphs 8.1 and 8.2).3. The petitioners failed to appear for the hearings or provide substantive responses to counter the allegations.The Court noted that there was no reason to disbelieve the Department’s assertion that the petitioners received proper notice and opportunity for hearing.Court AnalysisThe Delhi High Court emphasized that the issues involved—fraudulent ITC claims, validity of invoices, and non-existent firms—were predominantly factual in nature, requiring detailed examination of evidence. The Court observed that:The Court further highlighted the principle established in The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited (Civil Appeal No. 5121 of 2021), wherein the Supreme Court clarified that writ petitions under Article 226 are maintainable only under exceptional circumstances such as:1. Breach of fundamental rights;2. Violation of principles of natural justice;3. Excess of jurisdiction; or4. Challenge to the vires of the statute or delegated legislation.In this case, none of these exceptions were established. There was no proven violation of natural justice, as notice and opportunity for hearing were recorded, and the petitioners remained non-responsive. The Court held that writ jurisdiction cannot substitute the statutory appellate process for disputes requiring factual investigation.Court DecisionAccordingly, the Delhi High Court declined to entertain the writ petitions and directed the petitioners to:The Court explicitly refrained from commenting on the merits of the case, including the genuineness of supplies or fraudulent availment of ITC, emphasizing that these issues required detailed factual adjudication. Pending applications were also disposed of, and contentions of all parties were left open for consideration in the appellate proceedings.Judicial Precedents Referenced1. The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited (Civil Appeal No. 5121 of 2021) – established the limited scope for entertaining writ petitions against orders with alternate statutory remedies, except in exceptional circumstances.2. General principles of writ jurisdiction under Article 226 of the Constitution – applicable only when fundamental rights, natural justice, or jurisdictional excess are violated.ConclusionThe Delhi High Court clarified that writ petitions challenging GST adjudications involving complex factual investigations, such as fraudulent ITC claims, are generally not maintainable. Petitioners must exhaust statutory remedies under Section 107 of the CGST Act. The ruling underscores the principle that allegations of tax fraud require thorough evidentiary scrutiny and that administrative and appellate processes must be followed before seeking judicial intervention through writ petitions.This decision provides guidance to businesses that factual disputes and alleged fraudulent transactions in GST cases cannot be circumvented through writ petitions and must be addressed through the established appellate mechanisms.