The Allahabad High Court ruled that proceedings under Section 74 of the GST Act are invalid without evidence of fraud, misstatement, or suppression of facts with intent to evade tax. This decision came in the case of M/s S.A. Iron & Alloys Pvt. Ltd., which was initially subjected to a survey that revealed alleged discrepancies in stock and electricity consumption. Although a penalty was initially imposed, it was quashed upon appeal. However, more than three years later, authorities initiated proceedings under Section 74, which resulted in additional tax penalties.
The petitioner challenged the validity of these proceedings, arguing that there was no finding of fraudulent intent or suppression of facts. The High Court agreed, noting that both the adjudicating and appellate authorities failed to establish any fraudulent intent on the part of the petitioner. The Court emphasized that Section 74 proceedings are only justified when there is evidence of intentional tax evasion.
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Referencing a previous ruling in M/s Diamond Steel v. State of U.P., the Court concluded that the absence of such findings makes the proceedings unsustainable. Consequently, the Court quashed the appellate order and granted full relief to the petitioner, including the refund of any deposited amounts with interest. The refund is to be processed within two months of the order's receipt, underscoring the Court's stance on the necessity of clear findings of intent in tax evasion cases under the GST Act.
Order Date: 6 November 2025
Case Title: M/s S.A. Iron & Alloys Pvt. Ltd. v. State of U.P. & Ors.
Case No.: Writ Tax No. 735 of 2023
Facts
- The petitioner, M/s S.A. Iron & Alloys Pvt. Ltd., engaged in the manufacture of sponge iron and MS ingots, was subjected to a survey on 01.12.2018.
- Authorities allegedly found 220 tons of sponge iron stock in excess and noted discrepancies in stock valuation and electricity consumption without actual weighment.
- A penalty was imposed under Section 130(3) read with Section 122, which was quashed in appeal on 30.01.2023.
- Subsequently, after over three years, proceedings under Section 74 of the GST Act were initiated via notice dated 07.06.2022, resulting in an order imposing tax, interest, and penalty.
- The appellate authority partly allowed the appeal, reducing liability but not quashing it entirely, prompting the present writ.
Issue
- Whether proceedings under Section 74 of the GST Act can be sustained when there is no finding of fraud, wilful misstatement, or suppression of facts with intent to evade tax?
Order
- The Court observed that neither the adjudicating nor appellate authority recorded any finding that the petitioner acted with fraudulent intent or suppression of facts.
- Under Section 74, proceedings can only be invoked when the short payment or non-payment of tax results from fraud, misstatement, or suppression with intent to evade tax.
- Relying on M/s Diamond Steel v. State of U.P. (Writ Tax No. 4 of 2022, decided on 06.04.2023), the Court held that absence of such findings renders the proceedings unsustainable.
- Accordingly, the appellate order was modified and quashed, granting full relief to the petitioner.
- The Court directed refund of any amount deposited, along with 4% interest per annum, to be completed within two months of receiving the order.
