Facts of the Case:

In this case, the dispute arose from proceedings initiated under Section 74 of the Uttar Pradesh Goods and Services Tax (UPGST) Act against M/s Safecon Lifescience Private Limited for the tax period April 2021, alleging wrongful availment of Input Tax Credit (ITC) through GSTR-3B on the ground that the credit was forged or ineligible. The adjudicating authority confirmed the demand, and the appellate authority upheld the assessment. Aggrieved, the taxpayer approached the Allahabad High Court, contending that the transactions were genuine, the goods had actually moved, tax had been paid to the suppliers, and there was no material to establish fraud, wilful misstatement or suppression of facts with intent to evade tax. Accepting these submissions, the Allahabad High Court held that the essential ingredients required for invoking Section 74 were completely absent and accordingly quashed both the assessment and appellate orders. Challenging the High Court’s judgment, the Revenue filed Special Leave Petition (Civil) No. 23993 of 2026 before the Supreme Court.

Issue: Whether proceedings under Section 74 of the UPGST Act alleging fraudulent availment of Input Tax Credit can be sustained when the taxpayer has established genuine movement of goods and payment of tax, and the authorities have failed to record any finding of fraud, wilful misstatement or suppression of facts with intent to evade tax?

Held That:

The Supreme Court declined to interfere with the judgment of the Allahabad High Court and dismissed the Revenue’s Special Leave Petition after condoning the delay. By refusing to entertain the appeal, the Supreme Court effectively affirmed the High Court’s finding that invocation of Section 74 was wholly unjustified in the absence of any evidence establishing fraud, wilful misstatement or suppression of facts.

That the Allhabad High Court had rightly concluded that the taxpayer had demonstrated actual movement of goods, genuine purchase transactions and payment of applicable tax, and that mere allegations of forged or wrongful ITC could not justify resort to the stringent provisions of Section 74. The dismissal of the SLP lends finality to the High Court’s ruling and reinforces the principle that penal proceedings under Section 74 can be initiated only where the statutory ingredients are specifically established by the department.

Case name: Additional Commissioner, Grade 2 & Anr. Versus M/s. Safecon Lifesciences Private Limited dated 17.07.2026

To read the complete judgement 2026 Taxo.online 1971