Delhi High Court on GST penalty against directors: Writ petition declined in view of Section 107 appeal

Introduction

The Delhi High Court in Rishiraj Singh Rathore Vs Commissioner of CGST has clarified that directors facing penalties under Section 122(1A) of the Central Goods and Services Tax Act, 2017 must ordinarily exhaust the statutory appeal under Section 107 before invoking writ jurisdiction under Article 226 of the Constitution.

Two writ petitions were filed by Mr. Rishiraj Singh Rathore and Mr. Khushnud Khan, both Directors of M/s Sterne India Private Limited, assailing a common Order-in-Original dated 31.03.2026 imposing a penalty of Rs. 27,11,59,404/- on them under Section 122(1A) of the CGST Act, 2017. They sought quashing of the order through a writ of certiorari.

The High Court declined to interfere at the writ stage, holding that the issues raised were largely factual and should first be examined by the appellate authority under Section 107. At the same time, the Court preserved the assessee’s right to raise all contentions, including limitation, before the appellate forum.

Factual matrix

Business profile and investigation trigger

  • Petitioners’ role: Mr. Rishiraj Singh Rathore (Petitioner No.1) and Mr. Khushnud Khan (Petitioner No.2) were Directors of M/s Sterne India Private Limited (the Petitioners Company), a company engaged in trading of mobile phones and electronic goods.
  • Registrations: The company was registered under the Act of 2017 (CGST Act, 2017) with multiple places of business in Delhi, Maharashtra, West Bengal, Telangana and Karnataka.
  • Information received: The Directorate General of GST Intelligence (DGGI), Gurugram Zonal Unit initiated an investigation based on intelligence inputs regarding alleged fraudulent availment and passing of Input Tax Credit (ITC), involving issue of fake invoices without actual supply of goods or services.

During the investigation into certain mobile phone suppliers, several entities shown as suppliers to the Petitioners Company were found not to be functioning at their declared business addresses.

Findings regarding bogus suppliers and ITC

Physical verification indicated that these firms:

  • Did not have genuine inward supplies;
  • Appeared to have been set up only to pass along ITC;
  • Had no evidence of actual movement of goods.

Given that the Petitioners Company was identified as a beneficiary of ITC from these entities, the DGGI extended the investigation to the company itself in its capacity as availer/beneficiary of the alleged fraudulent ITC.

Summons and document verification

  • Summons dated 22.02.2022 and 10.03.2022 were issued to Petitioner No.2 at the company’s Delhi address but were returned undelivered.
  • Another summons dated 28.03.2022 was issued to the company’s registered address in Karnataka.

In response, the Petitioners Company, by emails dated 04.04.2022 and 05.04.2022, submitted:

  • Ledgers,
  • Purchase orders,
  • Bank account particulars,
  • And other supporting documents relating to its claimed suppliers.

On verification, the authorities found that the bank account details furnished corresponded to a different supplier. This mismatch, according to the record, suggested that genuine payments were not made against the very invoices on which ITC had been claimed.

Further summons and statement of directors

  • A summons dated 20.05.2022 was issued to Petitioner No.2 for appearance on **31.05.2022`. This was sought to be postponed citing medical grounds.
  • Another summons was issued on 02.06.2022. Petitioner No.2 appeared on 07.06.2022 but declined to have his statement recorded when confronted with the investigation material.

IMEI tracing and arrest

The investigation then drilled deeper using IMEI tracking. By tracing IMEI numbers through manufacturers and authorised distributors, namely:

  • M/s Apple India Pvt Ltd,
  • M/s Samsung India Electronics Pvt Ltd.,
  • M/s Savex Technologies Pvt Ltd,
  • M/s Infiniti Retail Pvt Ltd (Croma),

it emerged that the mobile phones covered by the disputed invoices:

  • Were supplied to entirely different entities, or
  • Were sold directly to B2C customers,

and had not, in fact, moved through the suppliers linked to the Petitioners Company. On this basis, Petitioner No.2 was arrested on 07.06.2023.