Allahabad High Court Slams Misuse of GST Section 74, Quashes Proceedings Against Pharma Firm
By Rajesh Pandey
Prayagraj: Expressing deep concern over the growing misuse of tax laws, the Allahabad High Court has pulled up revenue officials for harassing dealers under the pretext of Section 74 of the Goods and Services Tax (GST) Act, 2017.
The Court reminded authorities that the GST regime was introduced by the central government to ensure ease of doing business in India, but some officers are acting contrary to that very objective.
Justice Piyush Agrawal, while allowing a writ petition filed by M/s Safecon Lifescience Private Limited, ruled on September 9 that once the actual movement of goods is proved by the assessee and remains unrebutted by the department, proceedings under Section 74 cannot be justified.
The Court stressed that Section 74 of the GST Act can be invoked only in cases of fraud, willful misstatement, or suppression of facts with an intent to evade tax.
It cannot be used arbitrarily against genuine business transactions. In fact, the government itself had recognized misuse of this provision and issued a circular on December 13, 2023, clarifying that action under Section 74 should be taken strictly in cases involving fraudulent intent, not otherwise.
Case Background
The petitioner, Safecon Lifescience, had engaged in transactions with M/s Unimax Pharma Chem, Purana Taluka Bhiwandi, Thane.
For these dealings, all required documents—including invoices, e-way bills, transportability—were duly generated. Payments were made through official banking channels, and the supplier had filed tax returns reflecting the transactions.
Despite this, a notice under Section 74 was issued to Safecon, alleging wrongful availing of Input Tax Credit (ITC) because the supplier’s GST registration had been cancelled. The petitioner’s detailed reply, citing valid documents, was rejected. Even the appeal filed subsequently met the same fate.
Safecon contended before the High Court that the GSTR-3B returns of its supplier clearly showed that tax had been deposited on the transactions in question.
The petitioner further argued that all documentary evidence supporting the legitimacy of the transactions had been ignored by the authorities.
Court’s Observations
The High Court found merit in the petitioner’s case, noting that while documents such as invoices, e-way bills, transport bills, and returns were placed on record, they were not given due consideration by the revenue authorities. Importantly, both the petitioner’s and supplier’s GSTR-3B returns were on record and undisputed.
Justice Agrawal held that no irregularity in the transaction between the petitioner and supplier had been established.
He also observed that any material relied upon by the department against the assessee ought to have been supplied to them for proper defense, which had not been done in this case.
Reliance on Supreme Court Precedent
The Court also referred to the Supreme Court ruling in Continental Foundation Joint Venture Holding, Nathpa, H.P. vs. Commissioner of Central Excise, Chandigarh-I, where it was held that an incorrect statement cannot automatically be treated as a willful misstatement or suppression of fact unless it was made knowingly and with intent to evade tax.
If full disclosure has been made, no adverse inference should be drawn.
Final Ruling
Concluding that the authorities had proceeded unjustly, the Court set aside the notices and proceedings against Safecon Lifescience, reinforcing the principle that ease of doing business cannot be compromised by arbitrary use of coercive provisions like Section 74.
The judgment is expected to serve as a strong precedent for businesses facing harassment under GST laws and a reminder to revenue authorities to adhere strictly to the law’s spirit and the government’s directions.
