Delhi HC Upholds GST Demand Over Fake ITC Claim

Delhi HC Upholds GST Demand Over Fake ITC Claim

In a significant ruling, the Delhi High Court dismissed a writ petition challenging a GST demand notice involving fake Input Tax Credit (ITC). The court found that the petitioner had allegedly availed fraudulent ITC without actual receipt of goods and, thus, was not entitled to bypass the appeal process under the CGST Act.

This case once again underlines the strict judicial stance on fake GST ITC claims, especially where fraud is prima facie established.

Key Facts of the Case

• Petitioner: A Delhi-based taxpayer received a GST DRC-01 demand notice.
• Allegation: Availment of ineligible/fraudulent ITC without actual movement of goods.
• Claim: The taxpayer argued procedural lapses and sought relief directly through a writ petition under Article 226 of the Constitution.
• Observation: The Court held that presence of fraud bars writ jurisdiction unless appeal provisions are exhausted.
• Outcome: Writ dismissed. However, one month’s time was granted to file a statutory appeal under Section 107 of the CGST Act, 2017.

Legal Basis for Decision

The Delhi HC referred to the following key provisions and precedents:

• Section 16 of the CGST Act: ITC entitlement is subject to actual receipt of goods or services.
• Section 107: Statutory remedy of appeal must be exercised first, unless there’s a violation of natural justice.
• SC Precedent: Assistant Commissioner v. Commercial Steel Ltd. – Supreme Court reiterated that writ jurisdiction is not maintainable when alternate remedies exist, especially in fraud cases.
• Doctrine of Clean Hands: Fraud vitiates all proceedings. Courts generally don’t entertain petitions from parties with unclean hands.

Implications for Taxpayers Involved in Fake GST ITC Claims

This ruling reinforces the following practical takeaways:

• Don’t bypass appeals: Even if you believe the DRC-01 is flawed, approach appellate authorities first.
• Ensure genuine transactions: Mere invoices without actual goods receipt can trigger demand + penalty + possible prosecution.
• No shortcut through writ: High Courts are unlikely to entertain writs when fraud is alleged on record.
• Timely appeal filing is crucial: Delhi HC granted an extra month—but that’s a discretionary relief.

Expert Tip

If your ITC is being questioned:

✅ Compile transport documents, e-way bills, and payment proofs to establish actual supply.
✅ If a supplier defaults, consider filing under Rule 37A to reverse ITC voluntarily and reduce penalty exposure.
✅ Always respond to SCNs in writing—even if you plan to appeal later.

Comparison Table: Legitimate vs Fraudulent ITC

What to Do if You Receive a GST DRC-01 for Fake ITC?

Here’s a step-by-step guide:

1. Verify the grounds – Was the notice based on actual default or data mismatch?
2. Check supplier compliance – Use GST portal to see if your vendor filed GSTR-1 and 3B.
3. Reply to SCN – Don’t miss this stage. File a detailed response with documents.
4. File appeal (if needed) – Use Form GST APL-01 under Section 107.
5. Seek legal help – Especially if the case involves large amounts or intentional default.

Frequently Asked Questions (FAQs)

Q1. Can I file a writ directly if I get a GST demand?
No, unless natural justice is violated or there’s an exceptional urgency. Use the appeal route first.

Q2. What’s the penalty for fake ITC?
Under Section 122, penalty can be 100% of tax. Prosecution is also possible under Section 132.

Q3. Is input tax credit available if goods are in transit?
Only once goods are received. You need proof of delivery for claiming ITC under Section 16.

Final Word

The Delhi HC’s stance sends a clear message—no leniency for fraudulent ITC, and no shortcuts via writ petitions. Taxpayers must follow due process and maintain robust documentation to defend their ITC claims.

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