Petition challenging GST penalty dismissed as court held petitioners part of fake ITC syndicate and not mere outsiders

Case Details

• Case Title: Shri Shankar Mundra & Anr. v. Union of India & Anr.

• Court: High Court of Gujarat at Ahmedabad

• Petition Number: R/Special Civil Application No. 2857 of 2025

• Judgment Date: 06 March 2025

• Category: Input Tax Credit – Fake Invoices / Penalty

• Relevant Sections: Sections 74, 122, 127 of the CGST Act, 2017 & Gujarat GST Act, 2017

Facts (Paras 2–9)

The petitioners challenged an order-in-original dated 24.12.2024 issued by the Additional Commissioner, CGST, raising a demand of ₹4.34 crore along with equal penalty under Sections 74, 122, and 127 of the CGST/GGST Acts. The case arose from a composite show cause notice alleging that M/s Poonam Creation, operated by Ashok Gaggar, availed fake ITC on bogus invoices. Petitioners Shankar Mundra and Ujit Mundra were implicated on grounds that their entity Ashok Creation had deposited ₹10.7 lakh into Poonam Creation’s bank account before its GST registration. Petitioners denied involvement, arguing vague allegations and lack of jurisdiction since they were not “taxable persons.”

Questions Before Court (Paras 7–14)

1. Whether Section 74 proceedings could be initiated against non-taxable persons like the petitioners.

2. Whether vague allegations in the SCN justified levy of penalty under Sections 122 and 127.

3. Whether Section 122(1A), inserted from 01.01.2021, could apply retrospectively for transactions prior to that date.

4. Whether multiple periods could be covered in a single SCN under Section 74.

Observations (Paras 15–22)

The Court noted that the petitioners filed vague replies without disclosing their role or rebutting the allegation of being founders of Ashok Creation that funded Poonam Creation. Their silence amounted to implied admission of being part of the syndicate. Unlike Brindavan Beverages (SC, 2007) where no role was attributed, here detailed roles were articulated in the SCN and order.
The Court held that co-noticees aiding a taxable person can also be proceeded against under Sections 74 and 122. Reliance on Shantanu Hundekari (Bom HC, 2024) was misplaced as that case dealt with a taxation manager assisting investigation, unlike petitioners who were direct beneficiaries of fraudulent ITC. The plea against retrospective application of Section 122(1A) was rejected as petitioners were also covered under Section 122(3) (abetting offences).

Judgment (Paras 23–End)

The Court dismissed the petition, holding that:

• Petitioners were part of the fraudulent ITC syndicate.

• SCN was not vague; roles were specifically narrated.

• Jurisdiction existed under Sections 74 & 122 against co-noticees.

• The writ under Article 227 was not maintainable as disputed facts had to be adjudicated by proper authority.

Thus, the demand and penalty were sustained.

Cases Referred

Between Fine Lines

The Gujarat High Court has clarified that those aiding or abetting fake ITC frauds cannot escape liability merely by claiming non-taxable status. Co-noticees, even if not direct GST registrants, can face proceedings under Sections 74 and 122 if evidence suggests involvement. For businesses, this underlines the importance of distancing from suspicious entities, as even indirect financial links may trigger full liability equal to the fraudulently availed ITC.

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