Delhi High Court directs GST fraud petitioners to appeal, not seek writ relief

Case Name

M/s Sheetal and Sons & Ors. v. Union of India & Anr.(W.P.© 6441/2025 & connected matters, decided on 15th May, 2025)

Key Takeaways

• Alternative Remedy Principle: The High Court reiterated that writ petitions under Article 226 should not be entertained when a statutory appeal is available, except in exceptional circumstances (like breach of fundamental rights or violation of natural justice).
• No Violation of Natural Justice: The Court found that the petitioners were given notice and opportunities for a personal hearing, and thus, the principles of natural justice were not violated.
• Factual Disputes: The Court emphasized that issues like whether actual supplies were made or ITC was fraudulently availed are factual matters best examined by the appellate authority, not in writ proceedings.
• Direction to Appeal: Petitioners were directed to approach the Appellate Authority under Section 107 of the CGST Act, and the appeal should not be dismissed on limitation grounds if filed by the specified date.

Issue

Was the petitioners’ right to natural justice violated in the GST proceedings, justifying intervention by the High Court under Article 226, or should they be relegated to the statutory appellate remedy under Section 107 of the CGST Act?

Facts

• Parties: The main petitioners are M/s Sheetal and Sons, M/s Vikas Traders, and Mr. Sunny Jagga (who runs both firms, one in his own name and one in his mother’s name). The respondents are the Union of India and the GST authorities.
• Background: The Directorate General of GST Intelligence (DGGI) investigated several firms for allegedly availing ITC fraudulently by generating fake invoices without actual supply of goods. Five firms were named in the investigation, with large sums of ITC involved.
• Petitioners’ Role: The petitioners’ firms were found to have issued invoices to certain entities (later found to be fake/non-existent) at the direction of one Mr. Gopal Sharma. The petitioners claimed they were unaware these entities were fake and that all payments were received via RTGS.
• Proceedings: The tax authorities issued a Show Cause Notice (SCN) and an Order-in-Original imposing tax demands and penalties. The petitioners claimed they were not granted a personal hearing and challenged the order in the High Court.

Arguments

Petitioners

• No Personal Hearing: Claimed they were not granted a personal hearing, violating principles of natural justice.
• Procedural Lapses: Alleged that the order was uploaded on the portal with an incorrect date and that they did not receive proper notice.

Respondents (GST Authorities)

• Due Process Followed: Asserted that SCN, relied-upon documents (RUDs), and personal hearing notices were duly served (including via the petitioner’s email).
• Opportunities Provided: Pointed out that multiple dates for personal hearings were offered, but the petitioners did not appear or respond.
• Factual Disputes: Argued that the issues raised are factual and should be addressed in appeal, not in writ proceedings.

Key Legal Precedents

• The Assistant Commissioner of State Tax & Ors. v. M/s Commercial Steel Limited (Civil Appeal No 5121 of 2021):
• The Supreme Court held that the existence of an alternative remedy is not an absolute bar to a writ petition under Article 226, but such petitions should only be entertained in exceptional circumstances, such as breach of fundamental rights, violation of natural justice, excess of jurisdiction, or challenge to the vires of a statute or delegated legislation.
• In the present case, the High Court found that none of these exceptions applied, and the petitioners should pursue the statutory appeal under Section 107 of the CGST Act.
• Section 74 and 122 of the CGST Act, 2017:
• These sections deal with determination of tax not paid or short paid due to fraud (Section 74) and penalties for certain offences (Section 122).
• Section 107 of the CGST Act, 2017:
• Provides the right to appeal against orders passed by adjudicating authorities.

Judgement

• Decision: The High Court dismissed the writ petitions, holding that the petitioners had been given due notice and opportunity for a hearing, and that the issues raised were factual and should be addressed in appeal.
• Direction: The petitioners were directed to file an appeal before the Appellate Authority under Section 107 of the CGST Act by 15th July, 2025, along with the requisite pre-deposit. The Appellate Authority was instructed to decide the appeal on merits and not dismiss it on limitation grounds.
• No Comments on Merits: The Court made no observations on the merits of the case, leaving all contentions open for the appellate forum.

FAQs

Q1: Why didn’t the High Court decide on whether the ITC was fraudulently availed?

A: The Court found that this is a factual issue requiring examination of evidence, which is the job of the appellate authority, not the writ court.

Q2: What if the petitioners still believe they were denied a fair hearing?

A: They can raise this issue before the Appellate Authority, which has been directed to consider the appeal on merits.

Q3: What is the significance of the “alternative remedy” principle?

A: It means that if a statutory appeal is available, courts generally require parties to use that remedy first, unless there are exceptional circumstances like violation of natural justice.

Q4: What happens next for the petitioners?

A: They must file an appeal under Section 107 of the CGST Act by 15th July, 2025. The appellate authority will then review their case.

Q5: Did the Court find any procedural lapses by the GST authorities?

A: No. The Court accepted that notices and opportunities for hearing were provided, and there was no violation of natural justice.