The Supreme Court has declined to interfere with the Punjab and Haryana High Court’s judgment upholding action initiated under Section 74 of the Central Goods and Services Tax (CGST) Act against Ludhiana-based partnership firm for availing Input Tax Credit (ITC) from cancelled dealers.
The bench of Justice Manoj Misra and Justice Vijay Bishnoi has observed that it found no good ground to interfere with the judgment passed by the Punjab and Haryana High Court. As a result, the High Court’s decision sustaining the GST proceedings and recovery order has attained finality.
The controversy arose from GST proceedings relating to the period April 2020 to March 2021. The petitioner/assessee engaged in the manufacture and export of readymade garments, was accused by the GST department of availing Input Tax Credit from multiple suppliers whose GST registrations had already been cancelled before or during the relevant period of transactions.
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The department issued an intimation in Form GST DRC-01A on 18 November 2024 under Rule 142(1A) of the CGST Rules, alleging that the firm had wrongly claimed ITC from non-genuine suppliers. According to the department, the disputed credit exceeded ₹3.31 crore.
The GST authorities supplied a comprehensive statement identifying each allegedly fake supplier, including GSTIN of the supplier; Date on which the supplier’s GST registration had been cancelled; Relevant transaction period; and ITC claimed by the petitioner.
The department maintained that the petitioner had availed ITC despite dealing with suppliers whose registrations already stood cancelled, thereby rendering the transactions suspicious.
Despite receiving the DRC-01A intimation, the petitioner initially failed to furnish any reply.
After receiving no response, the department issued a formal Show Cause Notice in Form GST DRC-01 on 10 December 2024, accompanied by a summary of allegations.
Although the petitioner eventually filed a reply on 19 February 2025, the authorities found it to be vague and unsupported by documentary evidence. According to the record, the petitioner failed to produce basic documents expected to establish genuine transactions, including Tax invoices; E-way bills; Bank payment records; Books of account and ledgers; Weightment slips; and Other transport or delivery documents.
Even during subsequent personal hearings, the adjudicating authority repeatedly furnished details of the cancelled suppliers and granted several adjournments to enable the petitioner to explain the transactions. However, no satisfactory rebuttal or supporting evidence was produced.
Before the Punjab and Haryana High Court, the petitioner challenged the very initiation of proceedings under Section 74 of the CGST Act, arguing that the show cause notice was vague; no fraud or wilful suppression had been established; the ingredients necessary for invoking Section 74 were absent; and the adjudication order dated 28 August 2025 had been passed without jurisdiction and deserved to be quashed under Article 226 of the Constitution.
The State opposed the petition by contending that the writ petition itself was not maintainable because an effective statutory appeal was available under Section 107 of the GST Act. It further argued that complete particulars of the alleged fraudulent ITC had been repeatedly supplied to the petitioner, who nevertheless failed to produce any evidence demonstrating the genuineness of the purchases.
The Division Bench comprising Justice Deepak Sibal and Justice Lapita Banerji examined the scheme of Section 74 of the CGST Act, which governs recovery of tax not paid or ITC wrongly availed by reason of fraud, wilful misstatement or suppression of facts.
Particular emphasis was placed on Explanation 2 to Section 74, as applicable during the relevant period. The Court observed that the statutory definition of “suppression” was wide enough to include not merely concealment of facts but also failure to disclose information or failure to furnish information sought by the proper officer.
The High Court noted that throughout the adjudication proceedings, the department consistently informed the petitioner that ITC had been claimed on purchases from dealers whose GST registrations had already been cancelled. Nevertheless, despite repeated opportunities, the petitioner failed to produce documents proving that the transactions were genuine.
The Bench concluded that the petitioner’s conduct squarely attracted the provisions of Section 74 and justified initiation of proceedings for recovery of tax, interest and penalty.
Finding no procedural unfairness or jurisdictional defect, the High Court upheld the adjudication order directing recovery of GST dues together with applicable interest and penalty. It also declined to exercise its extraordinary writ jurisdiction in view of the statutory appellate remedy and the petitioner’s failure to rebut the factual allegations.
The matter eventually reached the Supreme Court through a Special Leave Petition. However, the apex court found no reason to interfere with the High Court’s judgment and dismissed the petition at the admission stage, thereby affirming the validity of the GST proceedings initiated under Section 74 against the petitioner.Â
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