Executive Summary
The CGST Delhi North Commissionerate issued Alert Circular No. 59/2025-26 (Ref: GEXCOM/SoR/22292/2025-CGST-RANGE-8-DIV-OLDDEL-COMMRTE-DELHI(N), dated September 2025), exposing a large-scale fraudulent Input Tax Credit (ITC) racket. The fraud centered on M/s Ajay Trading Co. (GSTIN: 07DRAPK9922D2ZT), a shell entity that:
- Obtained registration on 19-07-2019
- Was cancelled suo-motu on 20-07-2019 under Section 29(2)(e) (fraud/misstatement/suppression)
- Yet managed to fraudulently pass on ITC worth Rs 6.01 crore during FY 2019-20 to over 20 businesses across Delhi.
The circular highlights DGARM's role in detection, recipient-wise exposure, legal violations under Section 16, 29, 73/74, 50, Rule 86A, and enforcement actions mandated.
1. Administrative & Jurisdictional Framework
Issuing Authority: Assistant Commissioner, Old Delhi Division, CGST Delhi North Commissionerate
Reference No.: GEXCOM/SoR/22292/2025
Jurisdiction Covered:
- CGST Divisions: Old Delhi, Model Town, Kamla Nagar, Jahangirpuri (Delhi North); Janak Puri, Mundka, Rohini (Delhi West); Shahdara, Mandoli (Delhi East)
- State GST Wards: Zone 1 (Ward 26, 35), Zone 4 (Ward 70), Zone 5 (Ward 61, 62), Zone 6 (Ward 63, 72), Zone 12 (Ward 107 - Special Zone)
This wide coverage shows the networked nature of fraud and the need for coordinated enforcement.
2. DGARM Intelligence & Detection Methodology
DGARM flagged Ajay Trading Co. during scrutiny of FY 2019-20 returns based on:
- Registration anomaly: Registration obtained and cancelled within 24 hours
- ITC mismatch: Discrepancy between inward ITC (Rs 6.00 crore in 2A) and supplier declarations
- Supplier verification: Ritu Exim & VAM Enterprises either reported negligible or zero ITC passed on
- Disproportionate volumes: Activity far exceeding business life span
DGARM's analytics relied on cross-verification of GSTR-1, GSTR-2A, GSTR-3B to identify the fraud chain.
3. Entity Profile & Registration Fraud
- Ajay Trading Co. obtained registration on 19-07-2019.
- Cancelled suo-motu on 20-07-2019 under §29(2)(e).
- Despite this, it claimed ITC of Rs 6.00 crore and passed on Rs 6.01 crore.
29(2)(e) permits cancellation where registration was obtained by fraud. Courts (e.g., TSR Exports, Telangana HC) have held cancellation must follow due process (SCN, hearing, evidence). Here, the speed of cancellation indicates compelling fraud evidence.
4. Financial Analysis of Fraud
4.1 ITC Availed by Ajay Trading Co. (Inbound)
|
Supplier GSTIN |
Supplier Name |
CGST (Rs ) |
SGST (Rs ) |
Total ITC (Rs ) |
|
07EATPK5689G1ZV |
Ritu Exim |
2,96,33,243 |
2,96,33,243 |
5,92,66,486 |
|
07ETDPP6766E2ZA |
VAM Enterprises |
3,73,245 |
3,73,245 |
7,46,491 |
|
Total |
3,00,06,488 |
3,00,06,488 |
6,00,12,977 |
Discrepancies Noted:
- Ritu Exim's own GSTR-2A reflected only Rs 2,47,302, not Rs 5.92 crore.
- VAM Enterprises reflected Rs 0, despite Ajay Trading Co. claiming Rs 7.46 lakh.
4.2 ITC Passed On by Ajay Trading Co. (Outbound, GSTR-1)
|
GSTIN |
Receiver Name |
CGST (Rs ) |
SGST/UT (Rs ) |
Total (Rs ) |
Jurisdiction (as noted) |
|
07KYUPS6956P2ZN |
Advanta Sales |
55,90,727 |
55,90,727 |
1,11,81,454 |
State: Zone-5, Ward-61 |
|
07BZZPC1394N1ZK |
S S Traders |
52,45,562 |
52,45,562 |
1,04,91,125 |
State: Zone-6, Ward-63 |
|
07BBPPH5355G1ZG |
Enershell Tradex |
45,51,536 |
45,51,536 |
91,03,072 |
State: Zone-6, Ward-72 |
|
07CXEPM9484P1ZF |
Royal Star Enterprises |
31,83,899 |
31,83,899 |
63,67,798 |
State: Zone-5, Ward-62 |
|
07CULPG7834H2ZA |
Sunmukhi International |
31,37,847 |
31,37,847 |
62,75,695 |
Centre: Delhi West / Rohini |
|
07ANGPR8984B2ZJ |
Star Line Enterprises |
25,58,571 |
25,58,571 |
51,17,143 |
Centre: Delhi North / Model Town (R-21) |
|
07DIKPB4898G1ZW |
Sunpac Sales |
16,56,897 |
16,56,897 |
33,13,793 |
Centre: Delhi West / Janak Puri (R-131) |
|
07LLVPS6080F1Z6 |
Avanti Sales Impex |
8,69,327 |
8,69,327 |
17,38,654 |
State: Zone-1, Ward-26 |
|
07ECTPK9359F1ZU |
Ramesh Enterprises |
5,58,353 |
5,58,353 |
11,16,706 |
Centre: Delhi North / Kamla Nagar (R-19) |
|
07ENOPK6221A1Z7 |
Spencer Enterprises |
4,35,560 |
4,35,560 |
8,71,121 |
State: Zone-12, Ward-107 |
|
07ISLPS3009G1ZG |
Iskon International |
4,29,712 |
4,29,712 |
8,59,424 |
Centre: Delhi North / Jahangirpuri (R-27) |
|
07JLAPS7843K1ZD |
Aramex International |
4,19,376 |
4,19,376 |
8,38,752 |
Centre: Delhi West / Mundka (R-115) |
|
07EIPPB2452G1ZC |
Arihant Corporation |
3,60,132 |
3,60,132 |
7,20,264 |
Centre: Delhi North / Old Delhi (R-7) |
|
07AAUFG1832E1ZE |
Global Overseas |
3,39,355 |
3,39,355 |
6,78,710 |
Centre: Delhi North / Old Delhi (R-8) |
|
07AVSPL9044N1ZO |
Phenue Exim Export |
2,67,777 |
2,67,777 |
5,35,554 |
Centre: Delhi West / Rohini (R-109) |
|
07EATPK5689G1ZV |
Ritu Exim |
1,23,651 |
1,23,651 |
2,47,302 |
Centre: Delhi North / Model Town (R-21) |
|
07JNYPS3107J2Z5 |
Mohini Impex |
1,08,990 |
1,08,990 |
2,17,980 |
Centre: Delhi East / Shahdara (R-141) |
|
07BWMPN2697H1ZX |
Dev Narain Trading Co |
79,720 |
79,720 |
1,59,440 |
State: Zone-1, Ward-35 |
|
07BFZPJ2369Q1ZB |
Regency Tradelink |
77,998 |
77,998 |
1,55,995 |
Centre: Delhi East / Shahdara (R-143) |
|
07BBPPH5355G2ZF |
Freshtrop Traders |
30,501 |
30,501 |
61,003 |
State: Zone-4, Ward-70 |
|
07CCGPM7567L1ZW |
A S Enterprises |
30,501 |
30,501 |
61,001 |
Centre: Delhi East / Mandoli (R-136) |
|
Grand Total |
3,00,55,993 |
3,00,55,993 |
6,01,11,986 |
5. Legal Framework & Violations
5.1 Section 16 CGST Act - Breaches
- No valid invoice: Issued by a cancelled GSTIN.
- No actual supply: Physical verification confirmed non-existence.
- Tax not paid: Ajay Trading Co. never discharged its liability.
- Supplier default: Ritu Exim & VAM did not support the ITC trail.
5.2 Recovery Provisions
- §73: Wrong ITC without fraud - 3 years' limit, 10% penalty.
- §74: Fraudulent ITC - 5 years' limit, 100% penalty + prosecution.
5.3 Rule 86A
Allows blocking of ITC in the Electronic Credit Ledger if availed fraudulently (up to 1 year).
5.4 Judicial Precedents
- D.Y. Beathel Enterprises v. STO (Madras HC, 2021): Department must proceed against sellers first.
- Suncraft Energy Pvt. Ltd. v. ACST (Cal HC, 2023; SC SLP dismissed): Buyer cannot be penalised mechanically for seller default.
- LGW Industries Ltd. v. UOI (Cal HC, 2021): Genuineness of buyer's transactions must be evaluated.
6. Enforcement Directions in Circular
- Initiate recovery from recipients under §§73/74 with interest & penalties.
- Conduct physical verification of recipients; escalate if found non-existent.
- Forward cases to other jurisdictions where recipients are registered.
- Report compliance and recovery to issuing office.
7. Broader Implications
- System Vulnerability: Fraudsters still exploit registration loopholes.
- Business Risk: Legitimate buyers face ITC reversal despite bona fides.
- Compliance Burden: Stronger vendor due diligence now mandatory.
8. Recommendations for Taxpayers
- Verify supplier GSTIN status regularly.
- Cross-check GSTR-2A vs 3B.
- Preserve transaction documentation (invoices, delivery challans, e-way bills).
- Respond to SCNs with evidence of bona fide conduct.
9. Systemic Reforms Suggested
- Real-time ITC validation from cancelled GSTINs.
- AI-driven fraud pattern detection by DGARM.
- Enhanced KYC norms for new registrations.
- Sector-specific scrutiny for high ITC claim industries.
10. Conclusion
The Ajay Trading Co. fraud (Rs 6.01 crore ITC passed on) illustrates both the sophistication of fake invoice networks and the effectiveness of DGARM analytics. The circular mandates recovery and cross-jurisdiction enforcement, reinforcing that ITC without actual supply or tax payment is inadmissible under §16.
Taxpayers must strengthen compliance and vendor verification to safeguard ITC. Enforcement agencies must balance fraud detection with protecting bona fide businesses.
The author can also be reached at varunmukeshgupta96@gmail.com
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