Delhi High Court Rejects Writ Petition Challenging Fraudulent ITC Demand, Directs Statutory Appeal Under Section 107 CGST Act

In a significant ruling, the High Court of Delhi has reaffirmed the necessity for taxpayers to pursue statutory appellate remedies when disputing complex tax demands, particularly those involving allegations of fraudulent Input Tax Credit (ITC) utilization. The court, presided over by Justice Prathiba M. Singh and Justice Shail Jain, declined to exercise its extraordinary writ jurisdiction under Article 226, emphasizing that cases involving extensive factual analysis are ill-suited for writ proceedings.

The Backdrop: A Complex Trail of ITC

The dispute stemmed from an investigation initiated by the CGST Delhi, North Commissionerate regarding the fraudulent availment of ITC. Scrutiny uncovered a web of transactions involving non-existent firms that transferred substantial amounts of ITC—exceeding Rs. 122 crores—to over 1,155 taxpayers.

Toshniwal Electricals Pvt Ltd, the petitioner, found itself targeted in this dragnet, facing a demand for Rs. 9,81,070. The company challenged this Order-in-Original in the High Court, asserting that the denial of a personal hearing constituted a violation of the principles of natural justice.

The Legal Friction: Writ vs. Statutory Remedy

The core of the legal question was whether the court should intervene in a tax assessment order through a writ petition when an alternate statutory remedy under Section 107 of the CGST Act is available.

The Revenue successfully argued that the case involved a "complex maze of transactions" that cannot be bifurcated or resolved through summary writ proceedings. Following the Supreme Court’s precedent in The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited , the court held that writ jurisdiction is not an absolute right and should not be invoked in the presence of an alternate viable remedy unless exceptional circumstances—such as a failure of justice or an excess of jurisdiction—are clearly established.

Key Observations

The Court underscored the potential threat that such fraudulent practices pose to the integrity of the GST regime:

• On the misuse of ITC: > "It is observed by this Court in a large number of writ petitions that this facility under Section 16 of the CGST Act has been misused by various individuals, firms, entities and companies to avail of ITC even when the output tax is not deposited or when the entities or individuals who had to deposit the output tax are themselves found to be not existent."

• On the limits of writ jurisdiction: > "It is the settled position that this jurisdiction ought not be exercised by the Court to support the unscrupulous litigants."

• On the requirement for factual analysis: > "Moreover, when such transactions are entered into, a factual analysis would be required to be undertaken and the same cannot be decided in writ jurisdiction."

The Verdict: Navigating to the Right Forum

The Delhi High Court ultimately dismissed the writ petition, directing the petitioner to file an appeal with the appellate authority by November 30, 2025.

Crucially, the court granted the petitioner a lifeline: provided the mandatory pre-deposit is made, the appeal will be adjudicated on its merits, regardless of any potential issues with statutory limitation. This ruling serves as a stern reminder to legal practitioners and taxpayers alike that the High Court’s doors for writ petitions remain closed to those attempting to bypass the established hierarchy of tax litigation, especially when complex, fact-intensive fraudulent activities are involved.