Director of Fake Firm Treated as Taxable Person – Liable for Penalty

Case Details: Devender Singh vs. Additional Commissioner, Central Goods and Services Tax [2025] 180 taxmann.com 490 (Delhi)

Judiciary and Counsel Details

Prathiba M. Singh & Madhu Jain, JJ.
Akhil Krishan Maggu, Vikas Sareen, Ms Oshin Maggu, Aryan Nagpal & Ms Mehak Sharma, Advs. for the Petitioner.
Ms Anushree Narain, SSC, Naman Choula & Yamit Jetley, Advs. for the Respondent.

Facts of the Case

A show-cause notice was issued to the petitioner alleging that he was involved in creating fake firms to indulge in fraudulent circular trading and had been involved in operating various bank accounts, mobile phones under different names, and also GST Nos., which were generated in the names of these firms. A detailed order-in-original was passed against the petitioner after granting an opportunity to be heard, raising demands. The petitioner contended that he was only a director or a partner of the firms, and hence no penalty could be imposed upon him under section 122 of the CGST Act.

High Court Held

The Delhi High Court held that the allegations against the petitioner were extremely serious. In the case of fake, nonexistent, and fraudulent firms, who do not have any real persons as partners or proprietors or even any incorporation, the ‘taxable person’ would be the person who has got such firms created and used the same for availment of ITC. If the petitioner’s submission was accepted, then in the case of fake firms or non-existent firms, there would be no liability cast upon anybody despite fraudulently cheating the Exchequer of crores of rupees as in the instant case. The petitioner was clearly alleged to be the mastermind of the entire maze of transactions resulting in the fraudulent availment of crores of rupees of ITC. The associates of the petitioner were involved, and their services were utilized by the petitioner and his son for the creation of fake firms. Thus, the director or partner of the firm would be considered a ‘taxable person’ and liable for penalty under section 122(1).

List of Cases Referred to

Devender Singh v. Additional Commissioner, Central GST, Delhi West Commissionerate [W.P.(C) No. 1958 of 2025, dated 31-1-2025] (para 8)
Vallabh Textiles v. Additional Commissioner Central Tax GST [2025] 173 taxmann.com 801 (Delhi) (para 23)
Asstt. Commissioner of State Tax v. Commercial Steel Ltd. [2021] 130 taxmann.com 180/52 GSTL 385/88 GST 799 (SC) (para 25)
Mukesh Kumar Garg v. Union of India [2025] 174 taxmann.com 638/98 GSTL 419 (Delhi) (para 26)
Sheetal and Sons v. Union of India [2025] 175 taxmann.com 597 (Delhi) (para 27)
MHJ Metaltechs (P.) Ltd. v. Central GST Delhi South [2025] 174 taxmann.com 1277/110 GST 288/99 GSTL 446 (Delhi) (para 28)
Metal Techs v. Central GST Delhi South [2025] 179 taxmann.com 254 (SC) (para 29).