SC Dismissed SLP Against Quashing of Section 74 GST Proceedings for ITC Denial

Additional Commissioner Vs Safecon Lifesciences Private Limited (Supreme Court of India)

The matter arose from a writ petition challenging the order dated 20.12.2022 passed by the Additional Commissioner, Grade-2 (Appeal)-II, State Tax, Agra, and the order dated 12.01.2022 passed by the Deputy Commissioner, Commercial Tax, Agra. The petitioner, engaged in the wholesale trading and manufacturing of medicines and pharmaceutical products, had purchased goods from M/s Unimax Pharma Chem during April 2021 under a tax invoice dated 30.04.2021. According to the petitioner, the supplier was duly registered under GST and held a valid drug licence at the time of supply. The purchases were supported by tax invoices, e-way bills, transport bilty, and payments through banking channels. The petitioner also asserted that the supplier had filed GSTR-1 and GSTR-3B and paid tax on the relevant turnover.

Read HC Judgment in this case: Section 74 Proceedings Invalid Without Fraud or Willful Misstatement: Allahabad HC

The dispute arose after the Deputy Commissioner issued a show cause notice under Section 74 of the UPGST Act alleging that the petitioner had wrongly claimed Input Tax Credit (ITC) on purchases from M/s Unimax Pharma Chem, whose registration had subsequently been cancelled. The petitioner submitted a detailed reply contending that the supplier had deposited tax as reflected in GSTR-3B, that actual purchases had been made, and that the authorities had incorrectly recorded findings regarding absence of genuine purchases and mismatch in GSTR-2A. The adjudicating authority rejected the reply, holding that ITC could be claimed only when the supplier had deposited the tax as required under Section 16(2)(c). The petitioner’s appeal was also dismissed on the ground that the supplier had purchased goods from firms which had not deposited tax and had allegedly claimed forged ITC.

Before the Allahabad High Court, the petitioner submitted that all documentary evidence demonstrating actual movement of goods, payment through banking channels, tax invoices, purchase orders, transport documents, GSTR-1, GSTR-2A and GSTR-3B had been produced before the authorities but had not been considered. It also relied upon the circular dated 13.12.2023, contending that proceedings under Section 74 could be initiated only where fraud, wilful misstatement or suppression of facts to evade tax existed, and relied upon the decision in M/s Khurja Scrap Trading Company vs. Additional Commissioner Grade 2 (Appeal) and another. The State argued that since the petitioner’s supplier had made purchases from firms whose registrations had been cancelled and whose tax payments were doubtful, ITC could not be allowed to the petitioner.

The High Court examined the record and noted that the proceedings had been initiated solely on the basis of information received from the Office of the Principal Chief Commissioner, Central Intelligence Unit, Central Excise and Central Tax, Vadodara Zone. It found that the petitioner had produced material regarding actual movement of goods, payment through banking channels and GST returns reflected in GSTR-3B, but those materials had neither been disbelieved nor rebutted by any cogent evidence. The High Court held that once the petitioner had established actual movement of goods and payment of tax without rebuttal, proceedings under Section 74 could not be justified. It further observed that the appellate authority had acted only on the intelligence information without independent verification, that the report relied upon had not been supplied to the petitioner, and that no finding had been recorded establishing irregularity on the part of M/s Unimax Pharma Chem in relation to the petitioner’s transactions.

The High Court also referred to the circular dated 13.12.2023 and its earlier decision in M/s Khurja Scrap Trading Company, observing that Section 74 could be invoked only where there was fraud, wilful misstatement or suppression of facts to evade tax. It found that neither the adjudicating authority nor the appellate authority had recorded any finding of fraud, wilful misstatement or suppression by the petitioner. Referring to the Supreme Court judgment in Continental Foundation Joint Venture Holding, Nathpa, H.P. vs. Commissioner of Central Excise, Chandigarh-I, the High Court noted the observations regarding suppression, wilful misstatement and intent to evade duty. Holding that the authorities had recorded no finding of fraud, wilful misstatement or suppression of facts to evade tax, the High Court quashed both the appellate order dated 20.12.2022 and the adjudication order dated 12.01.2022 and allowed the writ petition.

The Revenue challenged the High Court judgment before the Supreme Court by filing a Special Leave Petition. The Supreme Court condoned the delay, considered the matter, and held that it did not find any good ground to entertain the petition. Accordingly, the Special Leave Petition was dismissed, and all pending applications, if any, stood disposed of. As a result, the High Court judgment quashing the orders passed under Section 74 of the UPGST Act remained undisturbed.

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Dismissed SLP Against Quashing of Section 74 GST Proceedings for ITC Denial – SC

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Supreme Court dismissed the SLP challenging the High Court order quashing Section 74 GST proceedings and related appellate and adjudication orders.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

1. Delay condoned.

2. We do not find any good ground to entertain this petition. The special leave petition is, accordingly, dismissed.

3. Pending application(s), if any, shall stand disposed of.