GST Act Intended for Ease of Business, Not Harassment: Allahabad HC Slams Revenue for Misusing Section 74 [Read Order]
The bench criticized the revenue’s mechanical reliance on information from the Central Intelligence Unit without independent verification. It was also observed that the report relied upon was never supplied to the assessee, violating principles of natural justice.
Allahabad - Highcourt - Taxscan
Allahabad - Highcourt - Taxscan
The Allahabad High Court has quashed orders passed under Section 74 of the GST ( Goods and Services Tax ) Act against a pharmaceutical company, observing that the Act was brought in for facilitating ease of business and not for harassing dealers. The court slammed the revenue for its misuse.
The Court said that proceedings under Section 74 can only be initiated in cases of fraud, wilful misstatement, or suppression of facts with intent to evade tax, and not otherwise.
The petitioner, M/s Safecon Lifescience Pvt. Ltd a trader and manufacturer of medicines, had purchased goods from M/s Unimax Pharma Chem, a duly registered supplier at the relevant time. Payments were made through banking channels, supported by tax invoices, e-way bills, and transport documents.
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Both the supplier and petitioner had filed GSTR-3B returns, reflecting payment of tax. Despite this, the Deputy Commissioner initiated proceedings under Section 74, alleging that the supplier’s registration was cancelled and that ITC was wrongly claimed. The first appellate authority upheld the order, relying on intelligence inputs against the supplier’s upstream transactions.
The High Court, however, found that the authorities had completely ignored the evidence of actual movement of goods, banking channel payments, and proper filing of GST returns by both supplier and purchaser.
Justice Piyush Agrawal noted that “Once actual movement of goods as well as payment of tax by the petitioner have been proved, to which no rebuttal has been brought on record, proceedings under Section 74 of the Act cannot be justified.”
The bench criticized the revenue’s mechanical reliance on information from the Central Intelligence Unit without independent verification. It was also observed that the report relied upon was never supplied to the assessee, violating principles of natural justice.
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The High Court also recalled its earlier decision in M/s Khurja Scrap Trading Co. and relied on a CBIC Circular dated 13.12.2023, which clarified that Section 74 proceedings can be invoked only in cases involving fraud or wilful misstatement/suppression to evade tax, not merely for non-payment or mismatches.
While mentioning the Supreme Court’s decision in Continental Foundation Joint Venture v. CCE (2007), the Court confirmed that “suppression” and “misstatement” must be wilful and with intent to evade duty, not mere clerical lapses or mismatches.
The court remarked that “GST regime has been brought by the Central Government for ease of business in the country, but the revenue officers are bent upon to act against the very theme and intent of it.”
Accordingly, the High Court allowed the writ petition, quashing both the orders of the Deputy Commissioner and the Appellate Authority
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