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Delhi High Court dismisses interim protection to person accused of Fraudulently availing IGST Refunds and ITC Credits
January, 11th 2021

The Delhi High Court dismissed a petition seeking the interim protection to the person accused of fraudulently availing IGST refunds and ITC credits.

Mr. Jagmohan Bansal and Mr. J.K. Mittal counsel for the Petitioners while praying for the interim protection submitted that Sections 69 and 132 of the Central Goods and Services Tax Act, 2017are unconstitutional as being provisions of criminal nature, they could not have been enacted under Article 246A of the Constitution of India, 1950. They emphasized that the power to arrest and prosecute are not ancillary and incidental to the power to levy and collect goods and services tax.

Mr. Bansal further urged that the procedure prescribed under the CGST Act is not just, fair and reasonable. There had been many cases where an assessee had been arrested at initial stage of investigation but the department had subsequently failed to establish its case in adjudication proceedings and in the process, the assessee had suffered irreparable loss on account of arrest.

It was further emphasized that in the present cases no Show Cause Notice had been issued to the Petitioners either under Section 73 or Section 74 of the CGST Act by the Respondents for any unpaid tax, short paid tax, or erroneous refunds or where input tax credit had been wrongly availed or utilized.

Mr. S.V. Raju, learned ASG for the Respondents, on the other hand submitted that the petitioner was involved in several non-functional and bogus firms that had fraudulently availed IGST refunds andITC credits and had caused substantial loss to the Union of India.

It was further stated that as per the investigation conducted till date, the fraudulent IGST refund was more than Rs.63 crores in the case of and the fraudulent ITC claimed in the case was more than Rs. 6.35 crores.


The investigation has revealed that the petitioner therein has raised sale invoices of Rs. 211.89 crores while having stock worth only Rs. 2.95 crores, which indicates that the petitioner has been indulging in circular trading by raising fraudulent invoices. In view of the said facts, he prayed that no interim protection be granted to the Petitioners.

The division bench of Justice Manmohan and Justice Sanjeev Narula while addressing the allegation that a tax collection mechanism has been converted into a disbursement mechanism most certainly requires investigation said that there Court has no doubt that the trial court, while considering the bail or remand or cancellation of bail application, ‘will separate the wheat from the chaff” and will ensure that no innocent person against whom baseless allegations have been made is remanded to police/judicial custody.

The Court held that it is not inclined to interfere with the investigation at this stage and that too in writ proceedings.

Consequently, the court dismissed the prayer for interim relief with liberty to the petitioners to avail the statutory remedies.

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