Facts of the Case: In this case, the transaction for April 2021 was supported by tax invoice, e-way bill, transport bilty, and banking channel payments. Both the petitioner and supplier duly filed GSTR-1 and GSTR-3B returns, reflecting the tax paid.

Despite this, a SCN under Section 74 of the UPGST Act was issued on the allegation that the supplier’s registration was subsequently cancelled, and its own purchases were doubtful, making petitioner’s ITC claim inadmissible.

The petitioner filed a detailed reply, substantiating actual movement of goods, tax payment, and return filing. However, the Deputy Commissioner rejected the ITC claim and passed an adverse order dated 13.10.2021. The first appellate authority also upheld the denial of ITC on 20.12.2022, relying solely on intelligence inputs from the Central Excise & Tax, Vadodara Zone.

Aggrieved, the petitioner approached the High Court.

Issue: Whether ITC availed by the petitioner could be denied under Section 74 of the UPGST Act, 2017, on the basis of alleged irregularities in the supplier’s chain of purchases, despite proof of actual movement of goods, payment through banking channels, and filing of GST returns?

Held that: The Court found that Section 74 can only be invoked if ITC is wrongly availed due to fraud, wilful misstatement, or suppression of facts to evade tax. Neither the SCN nor the orders recorded any finding of fraud, misstatement, or suppression against the petitioner.

The petitioner demonstrated actual movement of goods, valid invoices, banking channel payments, and return filings (GSTR-1 & GSTR-3B). These were not rebutted or disbelieved by the authorities.

Further, the Court noted that the orders were based only on an unverified report from the Central Intelligence Unit. The report and materials relied upon were never furnished to the petitioner, violating principles of natural justice.

Also, circular dated 13.12.2023, clarifies that Section 74 proceedings cannot be invoked merely for non-payment of GST without evidence of fraud or misstatement. The Court held that the authorities ignored this binding circular.

The High Court held that in absence of any finding of fraud, wilful misstatement, or suppression of fact, the initiation of proceedings under Section 74 was illegal and unsustainable. The impugned orders dated 12.01.2022 and 20.12.2022 were quashed.

The Court reinforced that genuine transactions with valid documents and tax payment cannot be denied ITC merely due to subsequent irregularities of the supplier, and authorities must not act mechanically on intelligence reports without verification.

Case Name: M/s Safecon Lifescience Private Limited Versus Additional Commissioner Grade 2 And Another dated 09.09.2025

To read the complete judgment 2025 Taxo.online 2338