The Delhi High Court has held that the tax department’s inability to furnish seized documents must be considered while assessing whether a taxpayer has discharged the burden of proving eligibility for input tax credit (ITC). 

However, the Bench of Justice Anil Kshetarpal and Justice Bharat Parashar declined to read down Section 155 of the Central Goods and Services Tax Act, 2017, observing that the statutory burden of proof and the consequences of missing records are distinct questions. 

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The Bench directed the taxpayers to pursue their statutory appeal against an adjudication order confirming recovery of approximately ₹12.89 crore, along with interest and penalties.

The Court also ordered the department to correct repeated demands appearing in Forms GST DRC-07 within fifteen days. It clarified that any statutory pre-deposit for the appeal must be calculated on the demand actually confirmed in the adjudication order, without accounting for the erroneous repetition.

The company exports readymade garments and footwear. The proceedings followed an investigation involving searches at office and residential premises on November 17, 2020.

The department alleged that the company had availed and utilised ITC on invoices issued by non-existent suppliers without receiving the goods covered by those invoices.

The adjudicating authority confirmed recovery of ₹12,88,99,060 from the company, together with applicable interest and an equivalent penalty under Section 74(9) of the CGST Act. It also imposed a penalty of ₹12,88,99,060 on each director under Section 122(1A), besides a separate penalty of ₹25,000 each under Section 122(3).

The challenged order was a common adjudication order covering several noticees.

The petitioners sought, among other reliefs, the reading down of Section 155, which places the burden of establishing ITC eligibility upon the person claiming the credit.

They argued that certain records taken into the department’s custody had not been returned, preventing the company from proving its entitlement to ITC.

They relied on an order dated March 23, 2023, passed in contempt proceedings, which recorded the department’s statement that the file relating to documents seized under a panchnama dated September 17, 2019, was untraceable. They further contended that reconstructed documents subsequently furnished during adjudication had not been duly considered.

The department maintained that available documents had been supplied. It argued that the absence of some records did not relieve the company of its statutory burden and that disputes over documentary evidence could be examined by the appellate authority.

The Bench held that the grievance regarding unavailable documents could be examined without reading down Section 155.

“The statutory allocation of the burden and the effect of the absence of particular documents are distinct questions,” the Court observed.

It noted that the earlier order recorded both the department’s inability to furnish documents relating to the untraceable file and the completion of the exercise concerning cloning and supply of electronic data.

Accordingly, the appellate examination would need to identify which records remained unavailable, their relevance to the disputed transactions, the prejudice caused by their absence, and whether the material supplied or reconstructed had been properly considered.

The Court expressly directed that the department’s recorded inability to furnish seized documents must form part of the assessment of whether the taxpayer had discharged the statutory burden. It left these factual and evidentiary questions to the appellate authority.

The petitioners also complained that the demand reflected in Form GST DRC-07 exceeded the amount specified in the show cause notice and confirmed in the adjudication order, contrary to Section 75(7).

The department acknowledged in its counter-affidavit that multiple summaries had been generated because of a technical glitch in the GST portal. It also produced a communication dated October 13, 2026, stating that steps were being taken to rectify the error.

The Court directed correction of the erroneous repetition within fifteen days of the judgment. The corrected summaries must faithfully reflect the adjudicated demand, with consequential corrections on the common portal communicated to the petitioners.

It further protected the appellate process by directing that the erroneous repetition must have no bearing on the computation of the statutory pre-deposit.

Declining to entertain the challenge under its writ jurisdiction, the Court relegated the petitioners to an appeal under Section 107 of the CGST Act.

The challenge to penalties under Section 122(1A) was directed to be examined in accordance with the Court’s September 29, 2026 judgment in Parag Garg v. Commissioner, Adjudication, CGST, Delhi West & Anr. All other objections concerning the demand, interest, penalties and appreciation of evidence were left open.

The petitioners were also permitted to apply under Section 14 of the Limitation Act, 1963, seeking exclusion of the period during which the writ petition remained pending. The Court directed that any such application be considered in accordance with law; it did not itself grant exclusion.

Disposing of the petition, the Bench clarified that it had expressed no opinion on the merits of the disputed transactions or the company’s entitlement to ITC.

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