Once Actual Movement Of Goods Proved By Assessee Remains Unrebutted, Proceedings U/S 74 GST Act Are Unjustified: Allahabad High Court

Proceedings under Section 74 of GST Act can be initiated if an assesee has not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by fraud or any willful- misstatement or suppression of facts.

Justice Piyush Agrawal held, “Once actual movement of goods as well as payment of tax by the respondent authorities have been proved by the petitioner to which no rebuttal has been brought on record at any stage, proceedings under section 74 of the Act cannot be justified.”

Petitioner submitted that certain transactions were done with M/s Unimax Pharma Chem, Purana Taluka Bhiwandi, Thane which for which invoices, e-way bills, and transport bilty were generated. It was submitted that all transactions were through banking channels and tax returns were filed by the other company declaring the transactions.

Petitioner was issued a notice under Section 74 of GST Act for wrongfully availing ITC on grounds that the registration of other firm had been cancelled. A detailed reply was filed by the petitioner, which was rejected. Appeal filed by the petitioner was also rejected.

Before the High Court, petitioner pleaded that the GSTR-3B of the supplier reflected that he had deposited the tax on the transaction with the petitioner. It was pleaded that all material supporting the transaction was also produced before the Authorities as well as the Court.

The Court observed that though all documents were produced before the authorities and all arguments were noted by the authorities, but no weightage was given to the same while passing orders. It observed that GSTR-3B of the supplier and the petitioner were brought on record showing the transactions and these were not denied by the department.

“The order of the first appellate authority has been passed only on the basis of the information sent by office of the Pr. Chief Commissioner, Central Intelligence Unit, Central Excise & Central Tax Vadodara Zone with closed eyes,” observed the Court while holding that the information must be verified before passing orders against registered dealers.

It held that no irregularity in transaction between the petitioner and the supplier was recorded in the material available before the authority. It further held that the material relied upon by the authority ought to have been provided to the petitioner.

The Court observed, “GST regime has been brought by the Central Government for ease of business in the country but the revenue officers are bend upon to act against the very theme/ intend of it. When it was noticed by the Government that under the garb of Section 74 of the Act various dealers are being harassed, issued a circular dated 13.12.2023 where it has specifically been stated that proceedings under section 74 of the Act can be initiated if there is a fraud or willful mis-statement or suppression of fact to evade payment of tax and not otherwise.”

Reliance was placed on Continental Foundation Joint Venture Holding, Nathpa, H.P. vs. Commissioner of Central Excise, Chandigarh-I, where the Supreme Court held that an incorrect statement would not be a ground of wilful misstatement or suppression unless made with the knowledge that it was not correct. It held that no adverse inference can be drawn if full information has been disclosed without intent to evade payment of tax.

Accordingly, the Court allowed the writ petition.

Case Title: M/S Safecon Lifescience Private Limited Versus Additional Commissioner Grade 2 And Another [WRIT TAX No. - 389 of 2023]

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