In a recent ruling, the Allahabad High Court quashed the demand under Section 74 of the GST Act against M/s B.P. Oil Mills Ltd. The case revolved around the company's purchase of mustard seeds from M/s Vijay Traders, whose GST registration was initially cancelled but later restored. Despite the restoration, the tax authorities initiated proceedings against B.P. Oil Mills, alleging that the purchases were made from a bogus dealer. The petitioner, however, provided evidence of genuine transactions, including payments through banking channels and the restored registration of the supplier.
The central issue was whether proceedings under Section 74 could be sustained when the supplier's registration had been reinstated. The court emphasized that Section 74 proceedings require proof of fraud, wilful misstatement, or suppression, none of which were present in this case. The authorities had not recorded any findings of fraud or suppression, and the documentary evidence demonstrated the legitimate movement of goods.
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Consequently, the court found the authorities' actions to be without legal basis, as they ignored the evidence and treated the transactions as though they were conducted with an unregistered dealer. The court, therefore, quashed the impugned orders dated 19.09.2023 and 09.09.2024, and allowed all the writ petitions filed by the petitioner. This decision underscores the importance of adhering to procedural requirements and the necessity of establishing fraud or suppression before invoking Section 74 of the GST Act. The ruling also highlights the significance of restored GST registrations in determining the legitimacy of transactions.
Parties: M/s B.P. Oil Mills Ltd. v. Additional Commissioner Grade–2 & Anr.
Order Date: 17 November 2025
Facts –
- Petitioner is engaged in manufacturing and trading of mustard oil and mustard oil cake.
- Petitioner purchased mustard seeds from M/s Vijay Traders, Rajasthan, a validly registered GST dealer at the time of supply.
- Payments were made through banking channel and fully reflected in accounts.
- Department issued DRC-01A under Section 74, alleging purchases from a bogus/non-existing dealer as the supplier’s registration had been cancelled.
- Petitioner produced proof that the supplier’s registration was restored on 27.05.2024, making cancellation irrelevant.
- Appeal was dismissed despite the restored registration and complete evidence of genuine movement of goods.
Issue –
- Whether Section 74 proceedings can be initiated when the suppliers registration has been restored?
Order –
- The High Court held that Section 74 requires fraud, wilful misstatement, or suppression; circular dated 13.12.2023 (paras 3.2–3.3) mandates this.
- No such element was present; authorities failed to record any finding of fraud or suppression.
- Since the suppliers registration was restored, treating purchases as from an unregistered/bogus dealer was illegal.
- Documentary evidence established actual movement of goods, which authorities ignored without basis.
- Impugned orders dated 19.09.2023 and 09.09.2024 were quashed. All writ petitions allowed.
