Delhi High Court Relegates Directors Challenging Fraudulent ITC Penalties to GST Appeals; Keeps Section 122(1) Non-Taxable Person Issue Open Pending Final Supreme Court Decision
Delhi High Court Disposes of Fraudulent ITC Penalty Writs; Directs Appeals, Protects Old Pre-Deposit Rule and Pragmatic Limitation Exclusion for Writ Period
Facts
The Delhi High Court decided a batch of 12 connected writ petitions under Article 226 challenging a common Order-in-Original dated 6 February 2025 passed by the Additional Commissioner, CGST, Delhi West. The order imposed penalties under Sections 74, 76(2) and 122(1) of the CGST Act, 2017, read with corresponding State/Union Territory GST enactments and the IGST Act.
The underlying adjudication concerned 61 companies/firms and 71 individuals associated with them. The petitioners before the High Court were Managing Directors, Directors or persons connected with those entities.
Show-cause notices had been issued in 2020 for the period from 1 July 2017 to 31 March 2019. The Department alleged that the concerned companies had fraudulently availed and utilised Input Tax Credit on invoices issued without any corresponding supply of goods.
Crucially, no tax demand was proposed against the petitioners in their individual capacities. Instead, they were called upon to explain why penalties should not be imposed upon them for allegedly masterminding the modus operandi involving generation, availment and utilisation of fraudulent ITC.
The petitioners therefore approached the High Court directly, principally questioning whether Section 122(1) could be invoked against persons who themselves were not treated as “taxable persons.”
Issues
The principal issues before the Delhi High Court were:
- Whether penalties under Section 122(1) of the CGST Act can be imposed upon Directors or other individuals who are not themselves “taxable persons”.
- Whether Sections 74 and 76(2) could be invoked against individuals where no tax was personally demanded from or collected by them.
- Whether the petitioners should be permitted to maintain writ petitions directly or be relegated to the statutory appellate remedy under Section 107.
- Which pre-deposit regime under Section 107(6) would govern appeals arising from show-cause notices issued in 2020, in light of the amendment effective from 1 October 2025.
- How directors lacking individual GST registration or a temporary identification number could file statutory appeals if the electronic portal prevented online filing.
- Whether the period spent prosecuting the writ petitions should be considered for exclusion while computing limitation for the statutory appeals.
Petitioners’ Arguments
The petitioners’ principal contention was that Section 122(1) applies only to a “taxable person.”
They argued that:
- they had not individually been treated as taxable persons;
- no personal tax liability was determined against them;
- no tax demand had been raised against them individually; and
- they therefore could not be subjected to penalties contemplated by Section 122(1).
They also questioned invocation of Sections 74 and 76(2), contending that no tax had personally been payable or collected by them.
The petitioners sought adjudication of these questions directly by the High Court rather than being compelled to pursue the appellate remedy.
Respondents’ Arguments
The CGST authorities objected primarily on the ground of availability of an efficacious statutory remedy.
They submitted that the impugned Order-in-Original was appealable under Section 107 of the CGST Act and that the petitioners’ objections—including the interpretation of Section 122(1), their individual roles and the evidence relied upon against them—could appropriately be examined by the Appellate Authority.
Analysis of the Law
1. Section 122(1) Issue Already Pending Before Supreme Court
A decisive consideration for the High Court was that the same legal issue—whether Section 122(1) can apply to a person who is not a taxable person—was already pending before the Supreme Court.
In Mukesh Kumar Garg v. Union of India, the Supreme Court had granted leave on two principal questions, one being whether Section 122(1) could be invoked against a non-taxable person. Pending the appeal, it stayed recovery subject to deposit of 25% of the demand.
The Delhi High Court clarified that only the first question in Mukesh Kumar Garg was relevant here because Section 122(1A) had neither been invoked in the SCNs nor applied in the impugned order against these petitioners.
The Division Bench therefore considered it inappropriate, as a matter of judicial propriety, to pronounce upon the same question while it was pending before the Supreme Court.
Statutory Appeal Under Section 107
The Court noted that there was no dispute that an appeal under Section 107 of the CGST Act was maintainable against the Order-in-Original.
Apart from the pure legal question concerning Section 122(1), the petitioners had also raised issues requiring consideration of:
- their respective roles;
- the specific allegations made against each of them;
- material collected by the Department;
- evidentiary findings; and
- individual factual circumstances.
The High Court considered these matters particularly suitable for determination by the statutory Appellate Authority rather than in writ jurisdiction.
Accordingly, the Court did not adjudicate the merits and relegated the petitioners to the appellate remedy.
Pre-Deposit Under Section 107(6)
An important practical issue concerned the applicable pre-deposit requirement.
During pendency of the writ petitions, the Delhi High Court had decided Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II), CGST Delhi Zone & Anr. on 31 July 2026.
That judgment held that the proviso to Section 107(6), substituted with effect from 1 October 2025, does not govern appeals arising from adjudicatory proceedings initiated through show-cause notices issued before that date.
Such appeals continue to be governed by Section 107(6) as it stood when the adjudicatory proceedings commenced.
Since all the relevant SCNs here had been issued in 2020, the Court held that the petitioners’ pre-deposit obligations would be governed by the earlier version of Section 107(6), not the substituted provision introduced from October 2025.
Physical Filing Where GST Portal Prevents Appeal
The High Court also addressed an important procedural problem.
Some petitioners were individuals against whom penalties had been imposed but who might not possess:
- an individual GST registration; or
- a temporary identification number.
If the electronic GST portal consequently prevented them from filing appeals online, the Court directed that the Appellate Authority must accept their appeals in physical form.
The appeals could not be rejected merely because of the mode of filing.
This ensured that a technical portal limitation would not defeat the statutory appellate remedy the Court was directing them to pursue.
Limitation and Time Spent Before High Court
Since the petitioners had spent considerable time prosecuting their writ petitions, the Court also protected them against an unduly technical limitation objection.
It directed that if the petitioners apply for exclusion of the period spent before the High Court while computing limitation for their Section 107 appeals, such applications must be considered pragmatically by the Appellate Authority.
The judgment did not itself declare the appeals within limitation or automatically exclude the entire period. Rather, it directed the statutory authority to consider the exclusion request pragmatically.
Precedent Analysis
Mukesh Kumar Garg v. Union of India
This pending Supreme Court matter was central to the High Court’s refusal to decide the principal Section 122(1) issue.
The Supreme Court had expressly taken up the contention that Section 122(1) may not apply to a non-taxable person and granted leave.
Because the same legal question arose in the present batch, the Delhi High Court held that judicial propriety required it to await the Supreme Court’s authoritative determination.
The Appellate Authority was therefore directed to decide that issue in conformity with the eventual Supreme Court ruling in Mukesh Kumar Garg.
Gaurav Jain & Anr. v. Joint Commissioner (Appeals-II), CGST Delhi Zone & Anr.
This recent Delhi High Court judgment governed the pre-deposit issue.
It established that where adjudicatory proceedings commenced through an SCN before the 1 October 2025 amendment to Section 107(6), the appeal remains governed by the pre-deposit provision existing on the date the proceedings commenced.
The Court directly applied this principle because the present SCNs were issued in 2020.
Court’s Reasoning
The Division Bench adopted a restrained approach.
The principal interpretation issue concerning Section 122(1) was already squarely pending before the Supreme Court. Deciding it independently could produce conflicting judicial pronouncements on the same question.
At the same time, the petitioners had multiple factual and legal defences beyond the pure interpretation issue. Those matters required examination of their individual involvement and the evidence relied upon by the adjudicating authority.
Since Section 107 provided an admittedly maintainable appellate remedy, the High Court concluded that the appropriate course was to send the petitioners to the Appellate Authority while protecting their procedural rights.
The Court therefore did not simply dismiss the petitions on alternate-remedy grounds. It ensured that:
- every substantive ground remained open;
- Section 122(1) would ultimately be governed by the Supreme Court’s decision;
- the older pre-deposit regime would apply;
- physical filing would be permitted where the portal prevented online appeals; and
- limitation applications concerning time spent before the High Court would receive pragmatic consideration.
Conclusion
The Delhi High Court disposed of all 12 writ petitions without deciding the merits of the GST penalties.
The petitioners were relegated to statutory appeals under Section 107, with all grounds kept open.
The Court directed that:
- applicability of Section 122(1) to persons who are not “taxable persons” must be determined in conformity with the Supreme Court’s eventual ruling in Mukesh Kumar Garg;
- pre-deposit would be governed by Section 107(6) as it stood when the respective 2020 SCNs were issued;
- physical appeals must be accepted where absence of GST registration or temporary ID prevents portal filing; and
- applications seeking exclusion of the writ-petition period for limitation purposes must be considered pragmatically.
The Division Bench expressly clarified that it had expressed no opinion on the merits of either side’s contentions.
Case Details
Case: Arun Kumar Jain v. Additional Commissioner, CGST Delhi West Commissionerate & Ors. with connected matters
Court: Delhi High Court
Case Number: W.P.(C) No. 2704/2025 with 11 connected writ petitions
Judge: Justice Anil Kshetarpal and Justice Shail Jain
Date: 13 August 2026
Result: Writ petitions disposed of; petitioners relegated to Section 107 appeals; all merits kept open, with pre-deposit, physical filing and limitation protections expressly granted.
