The Allahabad High Court has prima facie questioned the Revenue’s attempt to invoke the extended limitation and penal consequences under Section 74 of the U.P. GST Act, 2017, against Samsung Display Noida Private Limited, where the alleged excess Input Tax Credit (ITC) arose from the taxpayer’s interpretation of the law rather than an allegation of fraud, suppression or wilful misstatement.
The Bench of Justice Saumitra Dayal Singh and Justice Swarupama Chaturvedi considered whether there was any material basis to allege that the assessee had committed fraud or suppressed or misstated material facts to avail ITC beyond its entitlement.
The core issue before the Court concerned the Revenue’s allegation regarding the petitioner’s availment of ITC on Plant and Machinery.
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The petitioner’s case was that it had correctly filled its return and disclosed the relevant figures. According to the petitioner, there was no suppression or misstatement of facts. It had claimed ITC on Plant and Machinery on the basis of its understanding that such credit was legally available to it.
The Court noted that merely because the taxpayer understood the law and claimed ITC which it believed it was entitled to claim, and therefore did not disclose RITC for that reason, such conduct could not automatically be characterised as a misstatement or suppression of fact.
This observation goes to the heart of the distinction between an incorrect legal claim and conduct involving fraudulent intent or suppression of material facts.
Another significant aspect concerned documents discovered during investigation, which were described as contract documents.
The Court observed that these documents could not, prima facie, simply be relied upon to set up a case under Section 74 of the U.P. GST Act, 2017.
Importantly, the Court recorded that the documents themselves formed the basis of the disclosures made by the petitioner. Further, the Revenue was not contending that any fact discovered from those documents established the existence of RITC.
The observation is significant because Section 74 is not merely an alternative mechanism for reopening every tax dispute. The invocation of the extended limitation provision carries a higher threshold where fraud, wilful misstatement or suppression of facts is alleged.
Section 73 proceedings cannot automatically be converted into Section 74 proceedings
The Court made a particularly important prima facie observation on the relationship between Sections 73 and 74.
It held: “what may have been done in the course of assessment or proceedings under Section 73 of the Act, may not be attempted by applying extended period of limitation, under Section 74 of the Act.”
The observation highlights the distinction between a normal tax dispute and a case involving the more serious allegations contemplated under Section 74.
Where the controversy essentially concerns the taxpayer’s eligibility for ITC or interpretation of the statutory provisions, the Revenue may have to establish more than merely an incorrect claim before invoking the extended limitation and consequences associated with Section 74.
The High Court observed that the submissions advanced by Samsung Display Noida prima facie found support in the Supreme Court’s decision in Commissioner, Central Excise and Customs and another v. M/s Reliance Industries Ltd., 2023 INSC 591.
The reference to the Supreme Court decision is particularly relevant because the High Court considered the Revenue’s attempt to rely on an extended limitation provision despite the underlying dispute apparently concerning the taxpayer’s entitlement and interpretation rather than an established case of suppression or misstatement.
After considering the rival submissions, the Division Bench held that the matter required consideration.
The department was granted four weeks to file its counter affidavit, while the petitioner was granted two weeks thereafter to file a rejoinder. The matter has been directed to be listed in the week commencing November 16, 2026.
Most importantly, the Court ordered that: Further proceedings pursuant to the show cause notice dated May 12, 2026 shall remain stayed until the next date of listing.
The order carries wider significance for GST disputes involving allegations of excess ITC.
A recurring issue in GST litigation is whether an alleged wrong availment of ITC can, by itself, justify invocation of the provisions applicable to fraud, wilful misstatement or suppression.
The Allahabad High Court’s prima facie observations reinforce an important litigation distinction:
An erroneous interpretation of law is not necessarily equivalent to suppression or misstatement of facts.
Where the taxpayer has disclosed the relevant transactions and figures in its returns, the Revenue may face a higher burden in establishing that the case falls within the more stringent provisions of Section 74.
The order particularly draws attention to the difference between: non-disclosure of a material fact, and disclosure of facts accompanied by a disputed legal interpretation.
The Court noted the petitioner’s contention that the relevant figures had been correctly disclosed and that the dispute arose because the petitioner considered itself entitled to ITC on Plant and Machinery.
Thus, the mere existence of a tax dispute or a disputed ITC claim does not, without more, establish the ingredients necessary for invoking the extended limitation framework.
The Court’s observations concerning the contract documents are equally noteworthy.
The department had referred to documents discovered during investigation. However, the Court noted that these documents formed the basis of the petitioner’s disclosures and that the department did not contend that any fact discovered from them established the existence of RITC.
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