GST: ITC Cannot Be Denied for Want of Toll Plaza Receipts; Section 74 Unsustainable Without Allegation of Fraud
Case Note / Ratio Decidendi –M/s Raghuvansh Agro Farms Ltd. vs. State of U.P. & Ors., Writ Tax No. 3829 of 2025, decided on 17.12.2025
Issue: Whether input tax credit can be denied and adverse inference of circular trading can be drawn merely on the ground that the assessee failed to produce toll plaza receipts, despite producing statutory GST records and evidence of transactions.
Revenue’s Contention: The petitioner was allegedly engaged in circular trading without actual movement of goods. Absence of toll plaza receipts was relied upon to negate physical movement. Reliance was placed on State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd. (2023 SCC OnLine SC 248).
Findings of the Court:
1. Statutory Compliance Established: All purchases and sales were duly reflected in the books of accounts and statutory returns, namely GSTR-1, GSTR-2A and GSTR-3B. Payments were made through banking channels and bank statements were produced. Mere survey findings cannot override such documentary evidence.
2. Proceedings Against Supplier Dropped: Proceedings against the petitioner’s supplier (M/s Sibri Traders) had already been set aside by the competent appellate authority, and the said order had attained finality. Once proceedings against the supplier are dropped, no adverse inference can be drawn against the purchaser on that basis.
3. No Material to Prove Circular Trading: Allegation of circular trading was unsupported by any cogent material. Purchases and sales were supported by tax invoices, e-way bills, bilties, transporter ledgers, and payments through banking channels, evidencing actual physical movement of goods.
4. Toll Plaza Receipts Not Mandatory: The inference drawn due to non-submission of toll plaza receipts was held to be perverse and without legal basis. There is no provision under the CGST Act or Rules mandating production of toll receipts to prove movement of goods when other statutory documents (invoice, e-way bill, bilty) are available.
5. Distinction from Ecom Gill Coffee Case: The Supreme Court judgment relied upon by the revenue was held inapplicable, as in the present case the transactions were fully reflected in GST returns and supported by documentary evidence showing actual movement of goods.
6. No Rebuttal by Revenue: The State failed to specifically deny or controvert the petitioner’s assertions regarding filing of GSTR-1, GSTR-2A and GSTR-3B and payment of tax.
Ratio / Legal Principle: Once an assessee demonstrates compliance with statutory requirements under the GST law—by producing tax invoices, e-way bills, transport documents, GST returns, and proof of payment through banking channels—input tax credit cannot be denied nor can allegations of circular trading be sustained merely on presumptions or for non-production of toll plaza receipts, which are not mandated under the Act or Rules.
Relevant paragraphs in this regard may be read as under:
“26. The record further shows that all purchases and sales made by the petitioner are duly reflected, not only in the books of accounts but also in the requisite GSTRs – 1, 2A and 3B, respectively. All transaction are duly made through banking channel and bank statements were also brought on record before the authority concerned. The transactions are duly declared on GST portal also but merely on the basis of survey, all evidence filed by the petitioner has been brushed aside.
27. The record further shows that proceedings initiated against the petitioner on the basis of purchases made from M/s Sibri traders, however, the same has been set aside by the Deputy Commissioner, Anti Evasion CGST, Gurgaon by the order dated 2.6.2023 passed in Appeal No. 177 of 2022-23 and the said order has neither been set aside nor modified by any competent court. Once the proceedings has been dropped against the supplier of the petitioner itself, no adverse inference can be drawn against the petitioner on that basis. The allegation made by the revenue that petitioner is engaged in the circular trading is of no aid to and without any material on record.
28. Further the record shows that purchases and sales are being duly reflected in the GST portal supported by tax invoices, e-way bill and bilty and all payments were made through banking channels. The supporting ledgers were also brought on record, which clearly shows that due purchases have been made as well as actual physical movement of the goods has been taken place and no case of circular trading is made out in favour of the petitioner.
29. Further, an inference has been drawn against the petitioner that the petitioner has failed to submit the toll plaza receipts in order to justify the actual physical movement of the goods. The said finding is patently or apparently perverse and is without any basis. The revenue has failed to bring on record any provision or rule under the GST Act as well as Rules, which compel the assessee to file toll plaza receipts in support of actual physical movement of the goods. On the contrary, e-way bill, bilty and tax invoice was produced and payments made to the transporter through banking channel and due ledger of the transporter has also been brought on record but without pointing out any defect therein, the impugned order cannot be justified in the eyes of law.
30. The record shows that actual movement of goods as well as all transactions recorded in the books of accounts are reflected in Forms GSTR-1, 2A and 3 B respectively, therefore, the judgment of the Apex Court relied upon by learned ACSC in the case of M/s Ecom Gill Coffee Trading Private Limited (supra) is of no aid to him.
31. Further it is specifically averred by the counsel for the petitioner that not only the Form GSTR -1 is filed but also Form GSTR 3 B is there, which clearly shows that tax has duly been deposited and same has been reflected in GSTR 2 A, however, no specific denial has been made in the counter affidavit with regard to GSTR -1, 2 A and 3 B, by the State respondents. Once all ingredients provided under the Act has been complied with, the authorities are not justified in drawing adverse inference against the petitioner.”
Issue:
Whether proceedings under Section 74 of the CGST Act can be validly initiated in the absence of specific allegations or foundational facts relating to fraud, willful misstatement or suppression of facts with intent to evade tax or wrongly avail input tax credit.
Petitioner’s Contention:
The petitioner contended that the proceedings under Section 74 were initiated in a mechanical and arbitrary manner without alleging or establishing any of the mandatory ingredients, namely fraud, willful misstatement or suppression of facts with intent to evade tax. It was urged that mere invocation of Section 74, without pleading foundational facts, renders the proceedings without jurisdiction. Reliance was placed upon the Division Bench decisions of the Allahabad High Court in M/s Vadilal Enterprises Limited v. State of U.P. & Ors. (Neutral Citation No. 2025:AHC:87915-DB), HCL Infotech Ltd. v. Commissioner, Commercial Tax & Anr. (Neutral Citation No. 2024:AHC:158274-DB) and M/s Ajnara Realtech Limited v. State of U.P. & Ors. (Neutral Citation No. 2025:AHC:38761-DB).
Findings of the Court:
1. Mandatory Ingredients of Section 74: The Court held that for initiation of proceedings under Section 74 of the Act, the authorities are duty bound to expressly disclose and establish the existence of fraud, willful misstatement or suppression of facts for wrongful availment or excess claim of input tax credit. The show cause notice must specifically record that the assessee has wrongly availed or utilised ITC due to any of the aforesaid reasons.
2. Jurisdictional Requirement: It was observed that the jurisdiction of the assessing authority to proceed under Section 74 arises only when the basic and foundational ingredients of the provision are present in the show cause notice. Absence of such ingredients renders the entire proceedings without jurisdiction.
3. No Finding or Evidence on Record: On examination of the record, the Court found that neither the show cause notice nor the assessment order contained any categorical finding, much less supported by evidence, alleging fraud, willful misstatement or suppression of facts on the part of the petitioner. In the absence of such specific findings, the proceedings were held to be vitiated in law.
4. Consistent View of the Division Benches: The Court reiterated the settled position as laid down by the Division Benches in HCL Infotech Ltd., M/s Ajnara Realtech Limited and M/s Vadilal Enterprises Limited, wherein show cause notices and proceedings under Section 74 were quashed for lack of basic ingredients required for invocation of the said provision.
Ratio / Legal Principle:
Proceedings under Section 74 of the CGST/SGST Act can be initiated only when the show cause notice specifically alleges and discloses foundational facts constituting fraud, willful misstatement or suppression of facts with intent to evade tax or wrongly avail input tax credit. Mechanical invocation of Section 74, without such allegations supported by material, is without jurisdiction and vitiates the entire proceedings.
Relevant paragraphs in this regard may be read as under:
“20. The record shows that proceedings have been initiated against the petitioner under Section 74 of SGST Act and for initiation of the proceedings under Section 74 of the Act, the authorities are duty bound to show the reason of fraud, willful misstatement, suppression of fact for availment of input tax credit wrongly or excessive claim of input tax credit. In other words, the adjudicating authority must have express the reason in the show cause notice that the assessee has wrongly availed or utilized input tax credit due to some fraud or willful misstatement or suppression of fact.
21. Once the aforesaid basic ingredient in the show cause notice under Section 74 of the Act is missing, the proceeding becomes without jurisdiction as the assessing authority derives jurisdiction to proceed under Section 74 of the Act only when basic ingredients to such proceeding under Section 74 of the Act, are present.
22. On the aforesaid facts, the facts of the present case is to be tested. The records shows that adjudicating authority neither in the show cause notice nor in the assessment order has recorded any such finding supported by due evidence, thereof. In the absence of specific categorical finding supported by the evidence, the entire proceeding against the petitioner is vitiated.
23. The Division Bench of this Court in the case of HCL Infotech Ltd. (supra), while entertaining the writ petition against show cause notice issued under Section 74 of the Act has quashed the show cause notice, which lacks the basic ingredients to the proceedings. 24. Similar view has been expressed by the Division Bench in the cases of M/s Ajnara Realtech Limited (Supra) and M/s Vadilal Enterprises Limited (Supra).”
In respect to this issue, the Hon’ble Court has also referred to and relied upon the decision in M/s Safecon Lifescience Pvt. Ltd. vs. Additional Commissioner Grade-2 and another (Neutral Citation No. 2025:AHC:158800), wherein it has been held as under:
“13. The order of the first appellate authority has been passed only on the basis of the information sent by office of the Pr. Chief Commissioner, Central Intelligence Unit, Central Excise & Central Tax Vadodara Zone with closed eyes. The information sent by the Central Intelligence Unit must be verified by the authority before using the same against the registered dealer.
14. The record shows that the allegations were made against M/s Unimax Pharma Chem from whom purchases were made, that its registration was cancelled earlier. However, no finding has been recorded that M/s Unimax Pharma Chem, who sold the goods in question to the petitioner was involved in any irregularity. The total quantity purchased by M/s Unimax Pharma Chem was sold to the petitioner and no finding has been recorded that the alleged parties which supplied goods to M/s Unimax was the only sale made to it. The record does not confirms that M/s Unimax Pharma Chem made sale only to the petitioner. It is the duty of the officers to verify facts with all angles before being used against the registered dealer. Record further shows that the report used against the petitioner has neither been provided to the petitioner nor material used against the petitioner was ever provided which ought to be provided to the petitioner.
15. GST regime has been brought by the Central Government for ease of business in the country but the revenue officers are bend upon to act against the very theme/ intend of it. When it was noticed by the Government that under the garb of Section 74 of the Act various dealers are being harassed, issued a circular dated 13.12.2023 where it has specifically been stated that proceedings under section 74 of the Act can be initiated if there is a fraud or willful mis-statement or suppression of fact to evade payment of tax and not otherwise.
16. This Court had an occasion to consider such facts which is identical to the facts of the present case in M/s Khurja Scrap Trading Company (supra). Relevant paragraph nos. 11,12 and 13 of the said judgment is quoted below:
“11. Further, paragraph nos. 3.2 & 3.3 of the circular dated 13.12.2023 read as under:-
?3.2 In this regard, section 74 (1) of CGST Act reads as follows:
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax.
3.3. From the perusal of wording of section 74(1) of CGST Act, it is evident that section 74(1) can be invoked only in cases where there is a fraud or wilful mis- statement or suppression of facts to evade tax on the part of the said taxpayer. Section 74(1) cannot be invoked merely on account of nonpayment of GST without specific element of fraud or wilful mis-statement or suppression of facts to evade tax. Therefore, only in the cases where the investigation indicates that there is material evidence of fraud or wilful mis-statement or suppression of fact to evade tax on the part of the taxpayer, provisions of section 74(1) of CGST Act may be invoked for issuance of show cause notice, and such evidence should also be made a part of the show cause notice. ?
12. On perusal of the aforesaid paragraphs, it is apparent that proceedings under section 74 can only be invoked when there is a fraud, wilfull misstatement or suppression of fact to evade tax on the part of the taxpayer. Since the benefit of this circular has been given in view of the judgement of the Apex Court in Suraj Impex (India) Private Limited (supra) and the judgement of this Court in S/s Agrawal Rolling Mills (supra), strict compliance of the circular is required by the State authorities. The record shows that no finding has been recorded at any stage that there is a fraud or willful mis-statement or suppression of fact to evade payment of tax.
13. The record further shows that at the time when the transaction took place, the selling dealer, i.e., M/s Unique Trading Company, was duly registered. The record further shows that the selling dealer has duly uploaded GSTR ? 1/1FF and GSTR 3-B. Once, at the time of when transaction took place, the selling dealer was registered, no adverse view should have been taken against the petitioner as held by this Court in Solvi Enterprises (supra) and R.T. Infotech (supra). “
17. Record shows that neither any finding with regard to fraud has been noticed nor mis-statement nor suppression of fact has been recorded at any stage.
18. Section 11-A of the of the Central Excise Act, 1944 is having analogous provision to Section 74 of the UPGST Act. The Apex Court in the case of Continental Foundation Joint Venture Holding, Nathpa, H.P. vs. Commissioner of Central Excise, Chandigarh-I [(2007) 10 SCC 337] had an occasion to consider the expression ‘suppression’, ‘wilful misstatement’ and has held as under:
11. We are not really concerned with the other issues as ccording to us on the challenge to the extended period of limitation ground alone the appellants are bound to succeed. Section 11A of the Act postulates suppression and, therefore, involves in essence mens rea.
12. The expression ‘suppression” has been used in the proviso to Section 11A of the Act accompanied by very strong words as ‘fraud’ or “collusion” and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11-A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct.
13. Factual position goes to show the Revenue relied on the circular dated 23.5.1997 and dated 19.12.1997. The circular dated 6.1.1998 is the one on which appellant places reliance. Undisputedly, CEGAT in Continental Foundation Joint Venture case (supra) was held to be not correct in a subsequent larger Bench judgment. It is, therefore, clear that there was scope for entertaining doubt about the view to be taken. The Tribunal apparently has not considered these aspects correctly. Contrary to the factual position, the CEGAT has held that no plea was taken about there being no intention to evade payment of duty as the same was to be reimbursed by the buyer. In fact such a plea was clearly taken. The factual scenario clearly goes to show that there was scope for entertaining doubt, and taking a particular stand which rules out application of Section 11A of the Act.
14. As far as fraud and collusion are concerned, it is evident that the intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word ‘wilful’, preceding the words “mis-statement or suppression of facts” which means with intent to evade duty. The next set of words ‘contravention of any of the provisions of this Act or Rules’ are again qualified by the immediately following words ‘with intent to evade payment of duty.’ Therefore, there cannot be suppression or mis-statement of fact, which is not wilful and yet constitute a permissible ground forthe purpose of the proviso to Section 11A. Misstatement of fact must be wilful.
19. The Apex Court has clearly stated that incorrect statement, unless made with the knowledge that it was not correct, would will not be a ground of willful misstatement or suppression and no inference can be drawn if full information has been disclosed without intent to evade payment of tax.
20. In the case in hand the authorities have neither recorded any findings of fraud nor wilful misstatement nor suppression of fact to evade payment of tax, therefore, the proceedings under section 74 of the Act out not to have been initiated against the petitioner.
21. In view of the above discussions as well as judgment of the Apex Court and this Court, the impugned order dated 20.12.2022 passed by the Additional Commissioner, Grade-2 (Appeal)- II State Tax, Agra, respondent no.1 as well as the order dated 12.1.2022 passed by the Deputy Commissioner, Commercial Tax, Agra, respondent no.2 cannot be sustained and are hereby quashed.”
In respect to this issue, the Hon’ble Court has also referred to and relied upon the decision in M/s Khurja Scrap Trading Company Vs. Additional Commissioner Grade 2 (Appeal) and Another (Neutral Citation No. 2025:AHC:151793), wherein it has been held as under:
“10. It is not in dispute that the transactions between the petitioner and the selling dealer, i.e., M/s Unique Trading Company, were held on 26.11.2021 and 30.11.2021. The registration of the selling dealer was cancelled on 08.04.2022. The record further shows that GSTR – 1/1FF and GSTR 3-B were also filed, which shows the returns and tax filed by the selling dealer. Once these facts have been brought on record, the State authorities ought to have verified the same, but instead, proceedings were initiated on the basis of subsequent inspection that the selling dealer was not found at the place of business and adverse view was drawn. This Court in Solvi Enterprises (supra) and R.T. Infotech (supra) has taken the view that when the registration of the selling dealer was cancelled subsequent to the transaction, the same can be verified on GST portal on GSTR – 2A.
11. Further, paragraph nos. 3.2 & 3.3 of the circular dated 13.12.2023 read as under:-
“3.2 In this regard, section 74 (1) of CGST Act reads as follows:
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilized by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax.
3.3. From the perusal of wording of section 74(1) of CGST Act, it is evident that section 74(1) can be invoked only in cases where there is a fraud or wilful mis- statement or suppression of facts to evade tax on the part of the said taxpayer. Section 74(1) cannot be invoked merely on account of nonpayment of GST without specific element of fraud or wilful mis-statement or suppression of facts to evade tax. Therefore, only in the cases where the investigation indicates that there is material evidence of fraud or wilful mis-statement or suppression of fact to evade tax on the part of the taxpayer, provisions of section 74(1) of CGST Act may be invoked for issuance of show cause notice, and such evidence should also be made a part of the show cause notice. ”
12. On perusal of the aforesaid paragraphs, it is apparent that proceedings under section 74 can only be invoked when there is a fraud, wilfull mis-statement or suppression of fact to evade tax on the part of the taxpayer. Since the benefit of this circular has been given in view of the judgement of the Apex Court in Suraj Impex (India) Private Limited (supra) and the judgement of this Court in S/s Agrawal Rolling Mills (supra), strict compliance of the circular is required by the State authorities. The record shows that no finding has been recorded at any stage that there is a fraud or willful misstatement or suppression of fact to evade payment of tax.
13. The record further shows that at the time when the transaction took place, the selling dealer, i.e., M/s Unique Trading Company, was duly registered. The record further shows that the selling dealer has duly uploaded GSTR – 1/1FF and GSTR 3-B. Once, at the time of when transaction took place, the selling dealer was registered, no adverse view should have been taken against the petitioner as held by this Court in Solvi Enterprises (supra) and R.T. Infotech (supra).
14. In view of the aforesaid facts & circumstances of the case as noted above, the impugned orders cannot be sustained in the eyes of law. The matters require reconsideration.
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