GST Alert Circular No. 29/25-26: Investigation into Fraudulent ITC Passing, ITC Amounts, Legal Implications & Recovery Directions (FY 2019-21)

The Delhi GST Department's recent circular (No. 29/2025-26, dated 3 September 2025) represents a robust departmental response to networked Input Tax Credit (ITC) fraud. It exposes how invoices without supply and non-existent entities are used to pass on fraudulent ITC, and clarifies the regulatory consequences under the GST framework.

This article consolidates the entire circular content, recipient-wise amounts, and the legal/regulatory backdrop, ensuring GST professionals and taxpayers understand both the technical eligibility criteria for ITC and the enforcement action triggered when fraud is detected.

1. Background: Jurisdiction & Trigger

• Issued by: Office of the Assistant Commissioner, Daryaganj Division (CGST Delhi North Commissionerate).
• Scope: Sent to multiple Delhi GST ranges/divisions (Darya Ganj, Old Delhi, Okhla, Laxmi Nagar, Kamla Nagar, etc.), reflecting cross-boundary scale of the fraud.
• Basis: Risk analysis by DGARM (Directorate General of Analytics and Risk Management) for FY 2019-20 and FY 2020-21 flagged discrepancies.

DGARM deployed data analytics on GST returns to detect suppliers who issued invoices without filing GSTR-3B or paying tax, leading to targeted scrutiny.

2. The Core Case: M/s Mohd Shahid Enterprises

• Entity: M/s Mohd Shahid Enterprises (GSTIN: 07BJAPA3428C1ZZ)
• Principal Place of Business: Shop No. 42, KH/85, Daryaganj, New Delhi.
• Verification: Found non-existent at PPOB during physical inspection.

Key Findings

• FY 2019-20: ITC of Rs 19,49,39,150.28 availed despite supplier not filing GSTR-3B.
• FY 2020-21: The entity itself defaulted in filing GSTR-3B, yet continued reporting outward supplies in GSTR-1, passing ITC without tax payment.
• Legal Impact: As per Section 16(2)(c), CGST Act, 2017, ITC is ineligible unless tax has been paid to the Government.

Thus, ITC availed by and passed on through this entity is inadmissible and recoverable.

3. ITC Pass-Through Chain: Recipient-Wise Exposure

The Circular attaches detailed recipient lists for both years. These taxpayers availed ITC from M/s Mohd Shahid Enterprises' fraudulent invoices.

FY 2019-20: Recipients & Amounts

Total ineligible ITC (FY 2019-20): ~Rs 19.49 crore

FY 2020-21: Recipients & Amounts

Total ineligible ITC (FY 2020-21): ~Rs 11.07 crore

4. Enforcement Actions Directed

The Circular requires:

• Immediate initiation of proceedings under Sections 73/74 CGST Act for ITC reversal and recovery.
• Levy of interest u/s 50 and penalties u/s 122 (invoice without supply).
• Reporting of non-existent recipients for cancellation of registration u/s 29(2).
• Forwarding cases to other jurisdictions (Central/State) where applicable.

5. Legal Framework & Case Law

• Section 16 CGST Act: ITC valid only if tax paid to Government, goods/services received, invoice possessed.
• Section 122(1)(ii): Invoice without supply is an offence with penalty.
• Rule 86A: Power to block ITC if fraud suspected, valid for up to 1 year.
• Sections 73/74: Recovery mechanisms (non-fraud/fraud).
• Judicial guidance:
• D.Y. Beathel Enterprises v. STO (Madras HC, 2021) - recovery cannot be fastened on buyer without examining seller.
• Suncraft Energy Pvt. Ltd. v. ACST (Calcutta HC, 2023; SC SLP dismissed) - ITC denial cannot be mechanical; supplier must be investigated.

6. Broader Implications

• This case involves fraudulent ITC of ~Rs 30.56 crore (Rs 19.49 cr + Rs 11.07 cr).
• Demonstrates DGARM's risk analytics and cross-jurisdictional enforcement.
• Reinforces need for vendor due diligence and documentary proof (goods receipt, e-way bills, payment records).
• Warns taxpayers that ignorance or bona fide claims do not shield against ITC reversal if supplier defaults.

Conclusion

The Delhi GST Circular is a landmark enforcement move against fake invoicing. It reminds taxpayers that Section 16 compliance is strict and non-negotiable if tax is not deposited by the supplier, ITC is at risk.

With DGARM's analytics, cross-border coordination, and judicial backing, such actions will intensify. Taxpayers must therefore adopt robust compliance systems and supplier verification protocols to safeguard ITC.

If you have received any notice on similar grounds (fake ITC, invoice without supply, or non-existent supplier) or any GST compliance notice, you can freely contact the author for professional guidance. He can be reached at varunmukeshgupta96@gmail.com.