Korfex Industries Private Limited vs. State Of Rajasthan

Held

The Court held that the petitioner had colluded with other persons to defraud the public exchequer by fabricating and manipulating sham transactions, leading to the fraudulent claim of input tax credit. The Court found that the petitioner had exploited a systemic gap in the electronic system to create circumventing fake credit in the supply chain, which amounted to subverting the GST framework. Despite the petitioner's arguments regarding procedural irregularities in the seizure of goods and conveyances, the Court found that a party seeking discretionary relief must approach the court with clean hands. The Court invoked the principle that an act forbidden directly cannot be accomplished indirectly and that the law is concerned with the substance of an action, not merely its form. Citing the Supreme Court judgment in Tomorrowland Ltd. v. Housing & Urban Development Corporation Ltd., the Court emphasized that a party with unclean hands is not entitled to equitable relief. Consequently, the Court dismissed the writ petition with costs, directing the authorities to proceed against the petitioner under Section 130 of the Act and initiate other appropriate proceedings. The Court also expressed hope that GST authorities would plug loopholes in the electronic system.

Facts

The petitioner, Korfex Industries Private Limited, a registered dealer under GST, purchased remelted lead from M/s SS Industries. On July 29, 2025, a vehicle carrying the lead was dispatched, with a tax invoice and e-way bill generated. The vehicle reached the petitioner's factory on the same day. On July 30, 2025, a raid was conducted, and an order in Form GST MOV-02 was issued, citing the need for further verification of the genuineness of goods in transit and the supplier. The vehicle was taken from Bhiwadi to Jaipur, approximately 250 Kms away. The petitioner contended that the vehicle was not in transit but had reached its destination and that the MOV-02 order lapsed. They argued that the detention was illegal and time-barred, and the action was arbitrary and violated principles of natural justice. The petitioner sought quashing of the MOV-02 order, release of goods and conveyance, and compensation for losses.

Key Issues

1. Whether the order in Form GST MOV-02, issued under Section 68 of the GST Act, 2017, was legally valid when the goods and conveyance had already reached the petitioner's destination and were not in transit? (Petitioner's contention: MOV-02 is for goods in transit and lapsed. Revenue's contention: Not explicitly stated, but implied that the verification was necessary due to suspected fraud). 2. Whether the detention of the goods and conveyance was illegal and time-barred as per Section 68 read with Rules 138A, 138B, and 138C of the GST Act, 2017? (Petitioner's contention: Detention is illegal and time-barred as no discrepancy was found and the order lapsed. Revenue's contention: Not explicitly stated, but implied that the detention was justified due to fraudulent activities). 3. Whether the action of the respondent officials in taking the vehicle and goods to Jaipur was arbitrary, unconstitutional, and violative of principles of natural justice? (Petitioner's contention: Action was mala fide, illegal, void ab initio, and constituted undue harassment. Revenue's contention: Not explicitly stated, but implied that the action was taken to prevent tax evasion). 4. Whether the petitioner is entitled to compensation for the losses suffered due to the alleged illegal detention? (Petitioner's contention: Yes, due to illegal actions. Revenue's contention: Not explicitly stated, but implied that compensation is not due if the actions were justified).