Delhi High Court Upholds 7-Day Notice Before GST Arrest in Rs 8 Crore ITC Fraud Case

The Delhi High Court has directed the GST authorities to grant seven days’ prior notice before issuing any adverse order in an alleged GST fraud case involving over Rs 8 crore.

The dispute in the present case arose when the Directorate General of GST Intelligence (DGGI) initiated an investigation in the case of M/s Daak International Private Limited in December 2018. During the inquiry, officials found that the company was not operating from its registered address. Investigators alleged that the company had availed itself of and passed on an ineligible Input Tax Credit (ITC) through circular trading, causing a tax loss of over Rs 8 crore to the government.

According to the department, the company was active for only about ten months and stopped filing GST returns from March 2019. Several summons were issued to the company’s directors and related persons to appear before the authorities and provide documents. The department claimed that the respondents did not fully cooperate with the investigation.

The respondents approached the Sessions Court seeking anticipatory bail. While dismissing their bail applications, the court directed the GST authorities to provide the taxpayer with one week’s advance notice before taking any coercive action, including arrest.

The GST department challenged these directions, arguing before the high court that such protection was contrary to law and amounted to a blanket safeguard against arrest. However, the High Court noted that no proposal for arrest had been placed before the Commissioner, whose approval is mandatory under the CGST Act. Therefore, there was no immediate threat of arrest at that stage.

Justice Neena Bansal Krishna held that the directions did not grant blanket protection. The respondents were still required to join the investigation whenever called. The Court noted that the seven-day notice requirement merely ensured compliance with principles of natural justice and allowed the respondents to seek legal remedies if any coercive action was proposed.

The court noted that “no blanket protection has been granted to the Respondents; rather, specific directions have been issued requiring them to join the investigation, in accordance with law. It is only seven days’ prior notice that has been directed to be given to the Respondents by the Petitioner in the event that any coercive step is proposed to be taken by the Petitioner in the present matter, which cannot be held to be a blanket protection against all crimes in the future.”

Finding no illegality in the orders, the High Court dismissed all three petitions filed by the GST authorities.