'Taxable Person' Under GST Includes Individual Behind Fake Firms Used To Fraudulently Avail ITC: Delhi High Court

The Delhi High Court has held that where fraudulent availment of tax by a fake firm comes to light, penalties can be imposed on the person behind the bogus operations.

A division bench of Justices Prathiba M. Singh and Madhu Jain observed,

“When the expression 'taxable person' has to be interpreted, the 'taxable person', so long as it is an identified real person/entity it would be the said person/entity itself. However, in the case of fake, nonexistent 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.”

The Court was dealing with a Petitioner, under GST Department's scanner for allegedly operating several non-existing firms and operating a maze of transactions for fraudulently availing Input Tax Credit.

It was alleged that Petitioner pursued with bank officials to facilitate issuance of cheque books and opening of bank accounts of the said fake firms. Bogus GST invoices were also alleged to have been issued by the Petitioner and manipulation of the GST filings on behalf of both firms. All this was done to enable availment of ineligible ITC and undue ITC refunds.

The Petitioner however contended that under Section 121 of the Central Goods and Service Tax Act, 2017, penalty can be imposed only upon a 'taxable person'. However, since he is only a director or a partner of the firms, he would not be a 'taxable person' and hence, no penalty can be imposed upon him under Section 122(1) of the CGST Act.

The Court was however of the view that if such a contention 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 as is the position in the present case.

“The submission that under Section 122 of the CGST Act, it is only the 'taxable person' against whom a penalty can be raised, would not give benefit to the Petitioner who is clearly alleged to be the mastermind of the entire maze of transactions resulting in fraudulent availment of crore of rupees of ITC,” the Court said dismissed the plea.

Appearance: Mr. Akhil Krishan Maggu, Mr. Vikas Sareen, Ms. Oshin Maggu, Mr. Aryan Nagpal, Ms. Mehak Sharma, Advs. for Petitioner; Ms. Anushree Narain, SSC with Mr. Naman Choula & Mr. Yamit Jetley, Advs. for Respondent

Case title: Devender Singh v. Additional Commissioner, Central Goods And Services Tax, Delhi West

Citation: 2025 LiveLaw (Del) 1497

Case no.: W.P.(C) 16820/2025

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