The Allahabad High Court ruled that proceedings under Section 74 of the U.P. GST Act are unsustainable without specific allegations of fraud, wilful misstatement, or suppression of facts. This decision came in the case of M/s Raghuvansh Agro Farms Ltd. versus the State of Uttar Pradesh and others, following a 2019 survey that led to a show cause notice against the petitioner for alleged circular trading and wrongful input tax credit claims.
The petitioner, involved in trading agricultural goods, provided comprehensive documentation, including tax invoices, e-way bills, banking records, and tax returns, demonstrating legitimate transactions. However, the authorities drew adverse conclusions due to the absence of toll plaza receipts, despite no statutory requirement for such documentation. The adjudication and appellate orders confirmed the tax, interest, and penalties, prompting the petitioner to challenge the proceedings.
The High Court found the invocation of Section 74 jurisdictionally invalid because the show cause notice lacked clear allegations of fraud or misstatement supported by evidence. It emphasized that suspicions of circular trading or missing toll receipts, without a statutory mandate, are insufficient for adverse findings. The court highlighted that all transactions were properly recorded in GSTR-1, GSTR-2A, and GSTR-3B, with payments made through banking channels.
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Furthermore, the court noted the State GST authorities' failure to establish jurisdiction due to the absence of a valid cross-empowerment notification. Consequently, the court quashed the adjudication and appellate orders, allowing the writ petition and directing the refund of any deposited amounts in accordance with the law.
Order Date: 17 December 2025
Parties: M/s Raghuvansh Agro Farms Ltd. vs. State of Uttar Pradesh and Others
Facts:
- The petitioner, a registered dealer engaged in trading of agricultural goods, was subjected to proceedings under Section 74 of the U.P. GST Act pursuant to a survey conducted in 2019.
- A show cause notice alleging circular trading and wrongful availment of input tax credit was issued without specifying fraud, wilful misstatement, or suppression of facts.
- Despite the petitioner producing tax invoices, e-way bills, banking records, and returns reflecting genuine transactions, adverse inference was drawn primarily due to non-production of toll plaza receipts.
- The adjudication order and the appellate order confirmed tax, interest, and penalty, leading the petitioner to challenge the proceedings on jurisdictional and substantive grounds.
Issue:
- Whether proceedings under Section 74 GST can be sustained in the absence of specific allegations and findings of fraud, wilful misstatement, or suppression of facts?
Order:
- The High Court held that invocation of Section 74 is jurisdictionally invalid unless the show cause notice clearly alleges fraud, wilful misstatement, or suppression of facts supported by evidence.
- It observed that mere suspicion of circular trading or non-production of toll plaza receipts, in the absence of any statutory requirement, cannot justify adverse findings.
- The Court noted that all transactions were duly reflected in GSTR-1, GSTR-2A, and GSTR-3B and payments were made through banking channels.
- It further held that State GST authorities failed to establish jurisdiction in the absence of any valid cross-empowerment notification.
- Accordingly, the impugned adjudication and appellate orders were quashed, and the writ petition was allowed with a direction to refund any amount deposited in accordance with law.
