Punjab & Haryana High Court Upholds GST Demand U/s 74 for Fraudulent ITC Claimed Through Cancelled Dealers

The Punjab and Haryana High Court has dismissed a writ petition filed by Ludhiana-based partnership firm M/s Usha Industries (India), upholding GST proceedings initiated under Section 74 of the GST Act for allegedly availing fraudulent Input Tax Credit (ITC) through transactions with suppliers whose GST registrations had already been cancelled. The Division Bench comprising Justice Deepak Sibal and Justice Lapita Banerji ruled that the petitioner had failed to rebut detailed allegations made by the department despite being granted several opportunities during adjudication proceedings. The Court held that the case squarely fell within the ambit of “suppression” under Explanation 2 to Section 74 of the CGST Act as it stood during the relevant period. The dispute pertained to the tax period from April 2020 to March 2021. The petitioner, engaged in manufacturing and export of readymade garments, had been issued an intimation dated 18 November 2024 in Form DRC-01A under Rule 142(1A) of the CGST Rules, 2017. The department alleged that the firm had availed ITC from several entities whose GST registrations had been cancelled prior to or during the period of transactions. The Court noted that despite the initial intimation, the petitioner failed to submit any response. Thereafter, a formal show cause notice in Form DRC-01 dated 10 December 2024 was issued along with a summary of allegations. Though the petitioner eventually filed a reply on 19 February 2025, the High Court observed that the response was vague and unsupported by documentary evidence such as invoices, e-way bills, bank transaction proofs, account ledgers or weightment slips. During personal hearings, the adjudicating authority once again supplied details of the suppliers whose registrations had been cancelled. The petitioner was granted repeated adjournments and opportunities to rebut the allegations, but no meaningful response was furnished. The department had specifically supplied a detailed table listing the allegedly fake suppliers, their GSTINs, dates of cancellation of registration, transaction months and ITC amounts claimed by the petitioner. The data indicated that ITC exceeding Rs. 3.31 crore had been availed from multiple entities whose registrations had already been cancelled. The table formed part of the material supplied to the petitioner through DRC-01A proceedings. Before the High Court, the petitioner argued that the show cause notice was vague and that even if the allegations were accepted, the matter would not fall under Section 74 because no fraud or wilful suppression had been established. It was further contended that the adjudication order dated 28 August 2025 had been passed without jurisdiction and therefore deserved to be quashed in exercise of writ jurisdiction under Article 226 of the Constitution. Opposing the petition, the State argued that the writ petition itself was not maintainable in view of the statutory appellate remedy available under Section 107 of the GST Act. It was also submitted that the department had repeatedly disclosed complete details regarding the alleged fraudulent ITC transactions and that the petitioner had failed to provide any satisfactory explanation or supporting documents. The High Court extensively referred to Section 74 of the GST Act, which deals with determination of tax not paid or ITC wrongly availed by reason of fraud, wilful misstatement or suppression of facts. The Bench particularly relied upon Explanation 2 to Section 74, which defined “suppression” to include non-declaration of facts or failure to furnish information sought by the proper officer. The Court held that the petitioner had failed to rebut the department’s allegations despite repeated opportunities. It observed that the authorities had specifically informed the petitioner that transactions had been undertaken with cancelled dealers and that fraudulent ITC had been claimed on that basis. Yet, no evidence was produced to establish the genuineness of the transactions. The Bench concluded that the matter clearly attracted Section 74 proceedings and that the adjudicating authority had rightly passed the order directing recovery of GST dues along with interest and penalty. Consequently, the writ petition was dismissed. Case Details Case Title: M/s Usha Industries (India) Versus Union of India and others Citation: JURISHOUR-1434-HC-2026(P&H) Case No.: CWP-36104 Date: 07.05.2026 Counsel For Appellant: Sholab Arora, Advocate Counsel For Respondent: Ajay Kalra, Senior Standing Counsel Click Here To Read Order Read More: JURISHOUR | TAX LAW DAILY BULLETIN : 27 May, 2026

Punjab & Haryana High Court Upholds GST Demand U/s 74 for Fraudulent ITC Claimed Through Cancelled Dealers

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