The Delhi High Court has raised serious concerns over the widespread misuse of Section 16 of the Central Goods and Services Tax (CGST) Act, 2017, by traders for wrongful availment of Input Tax Credit (ITC). The Court emphasized that such misuse could significantly harm the integrity of the Goods and Services Tax (GST) system.
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Section 16 of the CGST Act is designed to help businesses by allowing them to claim tax credit on goods and services used in their production or supply chain. This provision ensures that businesses do not pay taxes on inputs already taxed at the source. However, the Court noted that the provision is being exploited by some businesses to wrongfully claim ITC without fulfilling the legal conditions.
A division bench of Justices Prathiba M. Singh and Rajneesh Kumar Gupta observed:
"Such misuse, if permitted to continue, would create an enormous dent in the GST regime itself."
The remarks were made during the hearing of a writ petition filed by an individual accused of establishing 28 fake firms and fraudulently claiming ITC worth over ₹115 crores, without supplying any goods or services. The petitioner argued that he was not the authorized signatory of the main firm involved, which was allegedly run by his son.
However, the Department countered this claim, highlighting that the petitioner was the sole proprietor of one of the firms involved in the scandal. The Department further noted that any challenge to the penalties imposed could be addressed through an appeal under Section 107 of the CGST Act, rather than through a writ petition.
The Court clarified that the extraordinary writ jurisdiction under Article 226 of the Constitution should not be used to protect "unscrupulous litigants." The Court stated:
"The Petitioner and his family are alleged to have created multiple firms solely to claim ITC without any actual supply of goods or services… The allegations reveal a complex maze of transactions between non-existent firms for fraudulent ITC claims."
Referring to the Supreme Court's decision in K.D. Sharma v. SAIL (2008), the Court reiterated that writ petitions should only be entertained when filed by individuals with clean hands, not those misrepresenting facts.
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Ultimately, the Delhi High Court dismissed the petition, imposing ₹50,000/- as costs, 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. UoI
Case no.: W.P.(C) 5737/2025
