Korfex Industries Private Limited vs State Of Rajasthan on 7 November, 2025

Judgment Summary: Korfex Industries Private Limited vs State Of Rajasthan

1. Outcome

The writ petition was dismissed with a cost of ₹5,00,000 imposed on the petitioner. The High Court declined to grant relief, directing the GST authorities to proceed with confiscation proceedings against the petitioner under Section 130 of the CGST Act, 2017.

2. Core Issue

The central legal question was whether the detention of goods and conveyance under Section 68 of the CGST Act, 2017, by issuing Form GST MOV-02, is legally valid when the conveyance has already reached its destination and is no longer "in transit," particularly in the context of overwhelming evidence suggesting the petitioner's involvement in a large-scale fraudulent scheme to evade taxes by availing fake Input Tax Credit (ITC).

3. Key Facts

• Transaction: The petitioner purchased remelted lead from M/s SS Industries, a Haryana-based supplier. An e-way bill and tax invoice were generated on 29.07.2025.
• Arrival of Goods: The vehicle (No. RJ-32-GE-9020) reached the petitioner's factory premises in Bhiwadi, Rajasthan on 29.07.2025 and was parked there for unloading.
• Department's Action: On 30.07.2025, during a search operation under Section 67 at the petitioner's premises, the GST officials issued an order in Form GST MOV-02 for physical verification, treating the goods as being "in transit." The vehicle and goods were then moved 250 km to the department's office in Jaipur.
• Department's Investigation: The respondents alleged that the petitioner was the ultimate beneficiary of a fraudulent scheme involving over ₹100 crores of fake ITC availed from non-existent or bogus firms. The specific supplier, M/s SS Industries, was allegedly a conduit firm sourcing from a fictitious Delhi-based entity, M/s Galaxy Enterprises. The driver's statement revealed that the goods were loaded in Delhi, contradicting the official documents which showed the origin as Haryana.

4. Arguments

Petitioner's Arguments:
* The action under Section 68 of the CGST Act was without jurisdiction, as the goods were no longer "in transit" after having reached their destination.
* The issuance of Form GST MOV-02 was illegal and void ab initio.
* The subsequent detention was time-barred and illegal, as no seizure order in Form GST MOV-06 was issued, nor was the time for inspection extended.
* The movement of the vehicle to Jaipur was an arbitrary and mala fide act intended to harass the petitioner.
* The transaction was legitimate with all valid documents, and tax was duly paid.

Respondents' (GST Department) Arguments:
* The petitioner is part of a well-organized cartel defrauding the exchequer through a chain of sham transactions and fake ITC.
* The documents accompanying the goods were fraudulent. The investigation and the driver's statement proved that the origin of the goods was intentionally mis-declared to facilitate the fraudulent scheme.
* The supplier (M/s SS Industries) and its purported supplier (M/s Galaxy Enterprises) were found to be sham/fictitious entities.
* The action was necessary to investigate a clear case of tax evasion. Given the intent to evade tax, the matter falls within the scope of Section 130 for confiscation.
* The term "goods in transit" should not be interpreted narrowly to allow fraudsters to escape liability merely because the vehicle has physically reached a location.

5. Court’s Reasoning

• Procedural Irregularity Acknowledged: The Court acknowledged that, factually, the vehicle was not "in transit" when the MOV-02 was issued and that there were procedural discrepancies in the officer's actions.
• Substance Over Form: However, the Court prioritized the substantive issue of large-scale fraud over the procedural lapse. It held that writ jurisdiction under Article 226 is an equitable remedy and cannot be exercised to protect those who misuse the legal process to defraud the public exchequer.
• Doctrine of "Clean Hands": The Court heavily relied on the equitable maxim, "he who comes into equity must come with clean hands." It found that the petitioner's conduct, marked by the fabrication of sham transactions and fraudulent availment of ITC, disentitled them from any relief.
• Broad Interpretation of "Contravention": The Court interpreted the term "contravenes any of the provisions of this Act" under Section 130 to include the abuse of the process of law with an intent to evade tax.
• Systemic Exploitation: The Court noted that the petitioner exploited a systemic gap in the GST electronic system (lack of automated cross-checking of ledgers) to perpetrate the fraud. It urged the authorities to plug such loopholes.
• Conclusion: In essence, the Court refused to interfere with the department's actions despite procedural flaws, holding that the petitioner’s unconscionable conduct and involvement in a massive tax evasion scheme overshadowed the technical illegalities in the detention process.

6. Statutory References

• Constitution of India: Article 226 (Writ Jurisdiction), Article 265 (Taxation by authority of law).
• Central Goods and Services Tax (CGST) Act, 2017:
  • Section 67: Power of inspection, search, and seizure.
  • Section 68: Inspection of goods in movement.
  • Section 129: Detention, seizure, and release of goods in transit.
  • Section 130: Confiscation of goods or conveyances and levy of penalty.
• Central Goods and Services Tax (CGST) Rules, 2017:
  • Rule 138, 138A, 138B, 138C: Provisions related to e-way bills.
  • Rule 139, 140, 141: Procedure for inspection, search, and seizure.
• Forms: GST MOV-02 (Order for physical verification), MOV-04 (Physical verification report), MOV-06 (Order of detention), MOV-10 (Notice for confiscation).

7. Precedents Cited

• Tomorrowland Ltd. v. Housing & Urban Development Corporation Ltd., (2025) 4 SCC 19: Cited to substantiate the principle that a party approaching the court for equitable relief must do so with "clean hands" and that a court of law cannot be an abettor of inequity.