S. 74 Of GST Act Can’t Be Invoked Without Proof of Fraud or Wilful Suppression: Allahabad HC

The Allahabad High Court has quashed proceedings initiated under Section 74 of the GST Act against a Kanpur-based fertiliser manufacturer, holding that the authorities failed to establish fraud, wilful misstatement or suppression of facts—mandatory prerequisites for invoking the provision. The bench of Justice Piyush Agrawal allowed two writ petitions setting aside both the original adjudication order dated October 28, 2024, and the appellate order dated July 18, 2025. The Court also directed the tax department to refund any amount deposited by the company along with interest within one month. The petitioner company is engaged in the manufacture and sale of organic fertilisers, with its manufacturing unit located in Kanpur Dehat and its principal office in Kanpur Nagar. While the office premises were registered as the principal place of business, the manufacturing unit had been approved as an additional place of business with retrospective effect from December 1, 2020. The dispute arose from a survey conducted on December 9, 2020, which, according to the petitioner, was not carried out at its business premises but at the office of an unrelated proprietary concern, M/s Maxwell Engineers. Based on the said survey, GST authorities initiated proceedings under Section 74, alleging wrongful availment of input tax credit (ITC) and subsequently passed an order reversing ITC (RITC) and imposing tax, interest and penalty. The company challenged the proceedings on multiple grounds, including that no survey was conducted at its registered office, which was closed on the relevant date. The person whose statement was relied upon was neither connected nor related to the petitioner. Copies of the survey report, panchnama and statements were never supplied. No opportunity of cross-examination was provided, despite specific requests. All purchases were duly reflected in GST returns, supported by invoices, e-way bills, bank statements and other statutory records. Crucially, there was no finding of fraud, wilful misstatement or suppression of facts, rendering Section 74 inapplicable. The petitioner also relied on earlier Division Bench rulings of the Allahabad High Court which had categorically held that mere allegations without specific findings on fraud cannot justify action under Section 74. The High Court found serious procedural and substantive lapses on the part of the tax authorities. The Court noted that once the additional place of business was approved with retrospective effect, no adverse inference could be drawn merely because manufacturing activities were not initially reflected in the registration. The Court observed that the alleged survey could not be linked to the petitioner, as its office was closed and the surveyed premises belonged to another entity. The authorities failed to provide relied-upon documents or allow cross-examination, violating principles of natural justice and Section 67 of the GST Act. Books of accounts and transactional records produced by the petitioner were found verifiable from official portals. None of the authorities recorded any clear finding of fraud, misstatement or suppression, which is a sine qua non for invoking Section 74. The Court placed reliance on its earlier Division Bench judgments in Chandrashekhar Yadav and Ajnara Realtech Limited, reiterating that Section 74 cannot be mechanically invoked without specific allegations and findings on fraud. The Court also took note of a parallel appellate order passed on July 17, 2025, in the petitioner’s own case for a different assessment year, where identical allegations based on the same survey had been rejected. That order, which had attained finality, held that erroneous ITC claims without proof of fraud could not attract penalty or interest under Section 74. The High Court quashed both the adjudication and appellate orders. The writ petitions were allowed, and the GST department was directed to refund the deposited amount with interest within one month. Case Details Case Title: M/S Kanpur Organics Private Limited Versus State of Uttar Pradesh and 2 others Case No.: WRIT TAX No. - 5836 of 2025 Date: December 08, 2025 Counsel For Petitioner: Aditya Pandey Counsel For Respondent: C.S.C. Click Here To Read Order Read More: Allahabad High Court Questions ‘Deemed Service’ of GST Orders Uploaded on Portal

S. 74 Of GST Act Can’t Be Invoked Without Proof of Fraud or Wilful Suppression: Allahabad HC

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