CGST Act | Writ Jurisdiction Under Article 226 Cannot Bypass Statutory Appeal When Show Cause Notice Details Modus Operandi Of Ineligible ITC: Delhi High Court

 "The principle laid down by the Supreme Court underscores that the mere use of statutory expressions cannot substitute for the disclosure of the material facts forming the basis for invoking Section 74. The application of that principle to a particular case, however, requires consideration of the contents of the notice under challenge and the nature of the allegations set out therein," Delhi High Court.

NEW DELHI: The Delhi High Court has held that where a show-cause notice under Section 74 of the Central Goods and Services Tax Act, 2017 details the factual arrangement and modus operandi of alleged fraudulent Input Tax Credit availment, an assessee cannot bypass the efficacious statutory appellate remedy through a writ petition under Article 226 of the Constitution of India. A Division Bench comprising Justice Anil Kshetarpal and Justice Bharat Parashar, while pronouncing judgment on October 28, 2026, held that writ courts must exercise judicial restraint where an adequate statutory mechanism exists to determine whether the notice and consequential demand or penalty satisfy statutory prerequisites.

The petitioner, the sole proprietor of M K Steel Traders, approached the High Court assailing separate orders-in-original dated February 4, 2025, passed by the Additional Commissioner of CGST raising substantial tax and penalty demands. The proceedings originated from an investigation into an alleged syndicate involving multiple firms orchestrated by one Mohit Jain to pass on ineligible Input Tax Credit through paper transactions unsupported by actual physical supply of goods. Aggrieved by the adjudication orders holding him liable as an active facilitator who distributed invoices for commission, the petitioner invoked writ jurisdiction under Article 226 of the Constitution of India without exhausting the statutory remedy of appeal available under the CGST Act.

Whether the High Court ought to exercise its extraordinary writ jurisdiction under Article 226 of the Constitution of India to quash adjudication orders when an efficacious statutory remedy of appeal is available under the Central Goods and Services Tax Act, 2017?

Whether a show-cause notice issued under Section 74 of the CGST Act detailing an interconnected network of sham transactions is liable to be interfered with in writ proceedings on the ground that it allegedly omits vital particulars or unlawfully levies penalties?

Examining the maintainability of the writ petitions in the face of an alternate remedy, the Bench observed that while the jurisdiction of the High Court under Article 226 of the Constitution of India is plenary and wide, it must be exercised with circumspection. The Court noted that the mere existence of an alternative statutory remedy does not take away constitutional jurisdiction, but statutory schemes must not be circumvented as a matter of course.

Existence of statutory appeal mandates judicial restraint under Article 226

The Court highlighted that where the legislature has established a comprehensive appellate hierarchy, writ courts should not usurp the function of appellate tribunals. The Bench underscored that the existence of an alternative remedy is a material consideration in deciding whether extraordinary constitutional interference is warranted at the threshold stage.

Addressing the challenge in the first petition where the petitioner claimed that the show-cause notice under Section 74 of the CGST Act lacked vital particulars, the Court scrutinized the notice and found that it spanned nearly 80 pages. The notice comprehensively delineated the Department's case concerning the elaborate web of entities utilized to generate and pass on bogus credit.

Elaborate show-cause notice outlining sham transactions cannot be branded as deficient in writ proceedings

The Bench observed that the alleged modus operandi, encompassing multiple entities and interconnected transactions, had been explicitly articulated. The Court ruled that the fact that a notice is issued commonly to several noticees does not render it deficient, nor does it justify interdiction in writ jurisdiction when the adjudicating authority had duly considered the petitioner's reply before passing the final order.

Turning to the second writ petition where the petitioner contended that penalty was imposed without a prior specific proposal in the show-cause notice, the Court observed that such an issue turns entirely upon the construction of the notice and the statutory framework.

Statutory appellate forum is fully competent to evaluate legality of penalty proposals

The Division Bench observed that the appellate authority is fully competent to analyze the terms of the show-cause notice, the statement recorded during the investigation, and the findings in the order-in-original to determine whether the penalty was lawfully imposed. The Court stressed that relegated assessees are not foreclosed from agitating procedural and substantive illegalities before the appellate forum.

Dealing with the petitioner's reliance on the Supreme Court's ruling in M/s G.R. Infra Projects Limited v. State of Madhya Pradesh, the High Court distinguished the legal proposition, observing that the invocation of Section 74 of the CGST Act in the present case was not based on mechanical recitations of statutory catchwords.

Application of precedents against mechanical invocation of Section 74 depends on factual contents of the notice

The Court observed that while mere use of expressions such as fraud, wilful misstatement, or suppression cannot substitute for material facts, the notices in question contained substantial factual material detailing the fraudulent syndicate. The Bench noted that whether such material ultimately establishes the individual liability of the petitioner is an exercise of evidentiary assessment falling squarely within the domain of the appellate authority.

The High Court declined to interfere with the orders-in-original dated February 4, 2025, and dismissed both writ petitions, relegating the petitioner to the statutory appellate remedy under the CGST Act. The Court clarified that it had not expressed any opinion on the merits of the demand or penalty and directed that any application filed by the petitioner under Section 14 of the Limitation Act, 1963 for exclusion of time spent in pursuing the writ proceedings shall be considered in accordance with law.

Date of Decision: October 28, 2026