Delhi High Court Dismisses Plea of Alleged Mastermind in Massive GST Fraud Case

New Delhi: The Delhi High Court has dismissed a writ petition filed by Devender Singh, alleged to be a key figure in a massive GST fraud involving 116 fake firms, upholding a demand and penalty order issued by the CGST department. The division bench of Justice Prathiba M. Singh and Justice Madhu Jain held that in cases of fraudulent Input Tax Credit (ITC) availed through non-existent firms, the "mastermind" behind their creation is the "taxable person" liable for penalties under the CGST Act.

The Court also ruled that the right to cross-examination is not absolute in such proceedings and refused to exercise its writ jurisdiction, directing the petitioner to avail the statutory remedy of appeal.

Case Background

The case stems from a Show Cause Notice (SCN) dated August 17, 2023, issued by the CGST department. The department's investigation uncovered a complex network of 41 exporting firms and 116 fake entities allegedly created and operated by Devender Singh and his son, Pawandeep Sachdeva. These firms were used for "circular trading"—issuing invoices without any actual supply of goods or services—to fraudulently claim crores of rupees in Input Tax Credit (ITC).

An initial Order-in-Original dated January 31, 2025, was set aside by the High Court in a previous writ petition (W.P.(C) 1958/2025) because the petitioner was not granted a hearing. After a fresh hearing, the Additional Commissioner passed a new order on July 28, 2025, which was challenged in the present petition.

Arguments from Both Sides

Petitioner's Contentions:

Mr. Akhil Krishan Maggu, counsel for the petitioner, raised three primary arguments: 1. Not a "Taxable Person": Under Section 122(1) of the CGST Act, penalties can only be imposed on a "taxable person." As the petitioner was merely a director or partner and not the registered entity, he could not be penalized. 2. Denial of Cross-Examination: The petitioner's request to cross-examine other co-noticees and individuals whose statements were used against him was unfairly rejected. 3. Lack of "Proper Officer": The SCN was invalid as the officer who issued it was not a designated "proper officer" for imposing penalties under Section 122 at that time, based on a subsequent circular.

Respondent's Stance:

Ms. Anushree Narain, representing the CGST Department, argued that the petitioner had not requested cross-examination during the first round of litigation. She contended that the previous court order only mandated a hearing, and the petitioner could not now raise fresh grounds to challenge the SCN itself.

High Court's Rationale and Findings

The High Court found the allegations against the petitioner to be "extremely serious" and delved into each of his contentions before dismissing the petition.

On the 'Taxable Person' Argument:

The bench firmly rejected the petitioner's interpretation, stating it would create a loophole for fraudsters. The Court observed:

> "In the case of fake, non-existent and fraudulent firms, who do not have any real persons as partners or proprietors or even any incorporation, the ‘taxable person’ would be the person who has got such firms created and used the same for availment of ITC. If the submissions of the ld. Counsel is accepted, then in the case of fake firms or non-existent firms, there would be no liability cast upon anybody despite fraudulently cheating the Exchequer of crores of rupees..."

The Court concluded that the petitioner, alleged to be the mastermind of the entire "maze of transactions," could not escape liability on this technical ground.

On the Right to Cross-Examination:

The Court held that the right to cross-examination is not an unfettered one in quasi-judicial proceedings, especially when there is substantial documentary evidence. Citing its own precedent in M/s Vallabh Textiles v. Additional Commissioner , the Court noted that parties cannot convert SCN proceedings into "mini-trials." The Court highlighted that the adjudicating authority had provided detailed reasons for rejecting the request, finding it unnecessary given the corroborative evidence.

On Writ Jurisdiction in Fraud Cases:

Reiterating its consistent stance, the bench emphasized that it would not ordinarily exercise its extraordinary writ jurisdiction in complex cases of fraudulent ITC availment. The Court cited several Supreme Court and High Court judgments, including The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited , to underscore that such matters require deep factual analysis best suited for the statutory appellate mechanism.

> "The persons, who are involved in such transactions, cannot be allowed to try different remedies before different forums, inasmuch as the same would also result in multiplicity of litigation and could also lead to contradictory findings..." the Court stated, quoting its decision in * Mukesh Kumar Garg v. Union of India & Ors.*

Final Decision

Finding no grounds for interference under its writ jurisdiction, the Court dismissed the petition. When queried if the petitioner intended to file a statutory appeal under Section 107 of the CGST Act, his counsel stated that he would be unable to make the mandatory pre-deposit. Consequently, the writ petition was dismissed, and the order of the Additional Commissioner was upheld.