Rampant Misuse Of S.16 GST Act For Wrongful Availment Of ITC Will Create 'Enormous Dent' In GST Regime: Delhi High Court

The Delhi High Court has once again flagged concerns over rampant misuse of Section 16 of the Central Goods and Services Tax Act 2017 by traders, for wrongful availment of Input Tax Credit.The provision enables businesses to get input tax on the goods and services which are manufactured/ supplied by them in the chain of business transactions. It is meant as an incentive for businesses who need not pay taxes on the inputs, which have already been taxed at the source itself.A division bench of Justices Prathiba M. Singh and Rajneesh Kumar Gupta observed that while the provision is meant to enable ease of doing business, it has been coming across many cases where 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. “Such misuse, if permitted to continue, would create an enormous dent in the GST regime itself,” the Judges remarked.Also read: GST | Delhi HC Rebukes Trend Of Persons Who Wrongfully Avail ITC By Invoking Writ Jurisdiction; Imposes ₹1 Lakh CostThe remarks come in a writ petition moved by an individual accused of establishing as many as 28 firms and availing fake ITC of more than ₹115 crores, without any supply of goods or services.The Petitioner challenged the penalties imposed upon him, claiming that he was not the authorized signatory of the main firm, which had availed the ITC and the same was run by his son.The Department on the other hand stressed on the collusion by Petitioner and pointed out that he was the sole proprietor of one of the firms involved in the scandal. Even otherwise, the Department contended that the question of imposition of penalty can be challenged by the Petitioner in an appeal under Section 107 of the CGST Act and this is not a case where the Court ought to entertain the writ petition.At the outset, the Court observed that Article 226 of the Constitution confers extraordinary writ jurisdiction which ought not be exercised by the Court to support 'unscrupulous litigants'.It observed, “the Petitioner and his other family members are alleged to have incorporated or floated various firms and businesses only for the purposes of availing ITC without there being any supply of goods or services…The allegations against the Petitioner in the impugned order are extremely serious in nature. They reveal the complex maze of transactions, which are alleged to have been carried out between various non-existent firms for the sake of enabling fraudulent availment of the ITC…The Court, in exercise of its writ jurisdiction, cannot adjudicate upon or ascertain the factual aspects.”Court cited K.D. Sharma v. SAIL, (2008) where the Supreme Court held thatpetitions under Article 226 of the Constitution of India would be liable to be entertained only in case of persons who come with clean hands and not in favour of the persons who present twisted facts or misrepresent the true and correct picture on record.As such, the Court dismissed the petition with costs of ₹50,000/- payable to the Delhi High Court Bar Association within four weeks.Appearance: Mr. Akhil K. Maggu, Mr. Ayush Mittal and Mr. Vikas, Advocates for Petitioner; Mr. Awadhesh Kumar Singh, Advocate. Ms. Monica Benjamin, SSC with Ms. Nancy Jain, Advocate. for R-2 & 3. Case title: Mukesh Kumar Garg v. UoICitation: 2025 LiveLaw (Del) 541Case no.: W.P.(C) 5737/2025Click here to read order

Rampant Misuse Of S.16 GST Act For Wrongful Availment Of ITC Will Create 'Enormous Dent' In GST Regime: Delhi High Court

Kapil Dhyani

Tags