Proceedings under Section 74 not justified if there was no fraud or suppression of fact to evade tax: HC

Allahabad HC – Bp Oil Mills Ltd v. Additional Commissioner Grade-2 [WRIT TAX Nos. 1841, 1843 and 1844 of 2024]

Issues:

The allegation has been made that the petitioner had purchased goods from a bogus supplier whose GST registration was shown as cancelled at the relevant time. further once the registration has been cancelled the supplier becomes unregistered dealer and benefit of ITC cannot legally be permitted.

Further the circular dated 13.12.2023 has been issued for initiation of proceedings under section 74(1) of the Act only if there is a fraud or mis-statement or suppression of fact with a view to evade payment of tax.

Petitioner’s Arguments:

The Petitioner established that it is a registered company having GSTIN carrying on the business in the normal course and duly supported with latest Tax Invoices, E-way bills, KUMS documents indicating transparent Business transactions.

The registration of the selling dealer has been restored. once the registration of the selling dealer has been restored no action can legally be taken against the petitioner holding that the purchases have been made from unregistered dealer.

Court’s Reasoning:

Once the registration of the selling dealer has been restored no adverse view could have been drawn against the petitioner. Further record shows that the actual physical movement of the goods was established by bringing on record various documentary evidence but the same has been brushed aside by the authorities very lightly.

The proceedings under section 74 can only be invoked when there is a fraud, wilfull mis-statement or suppression of fact to evade tax on the part of the taxpayer. It goes without saying that the circular issued by the higher authorities is binding upon the subordinate officers as held by the Apex Court in Suraj Impex (India) Private Limited vs. Union of India (2025) 30 Centax 362 (SC). Once the authorities have failed to record any finding of fact that there is a fraud or mis-statement or suppression of fact with a view to evade payment of tax, the proceedings under section 74 of the Act cannot be justified.

Conclusion:

In absence of any adverse material on record, the Court feels that the proceedings initiated against the petitioner cannot be sustained in the eyes of law.

In view of the peculiar facts and circumstances of the case stated above, the impugned orders in all the writ petitions cannot be sustained and are therefore quashed providing relief to the Petitioner.