M/s Raghuvansh Agro Farms Ltd. vs. State of U.P. & Others
(Allahabad High Court: Writ Tax No. 3829 of 2025)
(Proceedings Under
Section 74 Cannot Be Sustained Without Allegation and Proof of Fraud or
Suppression)
Introduction
The Allahabad High Court,
in its judgment delivered on 17 December 2025, once again reiterated the
settled legal position that proceedings under Section 74 of the GST Act cannot
be initiated mechanically or on mere suspicion. In M/s Raghuvansh Agro Farms
Ltd. vs. State of U.P. & Others, the Court quashed the entire
proceedings initiated by the State GST authorities on the ground that the basic
ingredients of fraud, wilful misstatement, or suppression of facts were
completely absent. The judgment is a strong reminder that GST enforcement must
follow the rule of law and cannot run on assumptions, howsoever strong.
Case
Details
The writ petition was
filed as Writ Tax No. 3829 of 2025 before the High Court of Judicature
at Allahabad. The petitioner was M/s Raghuvansh Agro Farms Ltd., a
private limited company engaged in the supply of agricultural goods and areca
nuts, holding GSTIN 09AABCR8407N1ZW. The respondents were the State of Uttar
Pradesh and two other GST authorities. The matter was heard and decided by Hon’ble
Justice Piyush Agrawal.
Facts of
the Case
A survey was conducted at
the premises of the petitioner on 22 January 2019. Based on the survey, a show
cause notice under Section 74 of the GST Act was issued in Form GST DRC-01 on 7
April 2021. The petitioner submitted a detailed reply along with documentary
evidence. Thereafter, another notice along with reminders was issued, to which
the petitioner again submitted a comprehensive reply.
Despite submission of
replies and supporting documents, no opportunity of personal hearing was
granted, and an assessment order dated 31 May 2023 was passed, raising demand
of tax, interest, and penalty on allegations of circular trading. The appeal
filed by the petitioner was also dismissed, compelling the petitioner to
approach the High Court.
Petitioner’s
Submissions
The petitioner contended
that it was regularly maintaining books of account and paying GST as per law.
It was argued that the proceedings were without jurisdiction since the
petitioner fell under Central GST jurisdiction, whereas the proceedings
were initiated by the State GST authorities, without any valid
cross-empowerment notification.
The petitioner further
submitted that Section 74 proceedings were initiated without even alleging,
much less establishing, fraud, wilful misstatement, or suppression of facts. It
was pointed out that all purchases and sales were supported by valid tax invoices,
e-way bills, bilties, bank payments, and were duly reflected in GSTR-1,
GSTR-2A, and GSTR-3B. The allegation of circular trading, according to the
petitioner, was completely baseless and unsupported by evidence.
The petitioner also
challenged the adverse inference drawn by the authorities for non-production of
toll plaza receipts and weighbridge slips, submitting that there is no
provision under the GST law mandating production of such documents for proving
movement of goods.
Stand of
the Revenue
The State authorities
defended the impugned orders by alleging that the petitioner was engaged in
circular trading without actual movement of goods. It was argued that the
petitioner failed to produce toll plaza receipts and other corroborative
material to establish physical movement of goods. Reliance was placed on the
Supreme Court judgment in State of Karnataka vs. Ecom Gill Coffee Trading
Pvt. Ltd. to justify the action taken.
Issues
Before the Court
The principal issues
before the Court were whether proceedings under Section 74 could be sustained
in the absence of any specific allegation or proof of fraud, wilful
misstatement, or suppression of facts, and whether the State GST authorities
had jurisdiction to initiate proceedings against the petitioner who was
admittedly under Central GST jurisdiction.
Findings of
the Court
The Court observed that
Section 74 is a serious provision which can be invoked only when the department
clearly alleges and establishes fraud, wilful misstatement, or suppression of
facts with intent to evade tax. The Court noted that neither the show cause
notice nor the assessment order contained any categorical finding supported by
evidence to satisfy these mandatory ingredients. Once these foundational
requirements are missing, the entire proceedings become without jurisdiction.
The Court further held
that merely alleging circular trading without material evidence is not
sufficient. All transactions of the petitioner were reflected in statutory
returns and supported by documents such as invoices, e-way bills, and bank
statements. The Court found the insistence on toll plaza receipts and
weighbridge slips to be wholly arbitrary, observing that there is no provision
under the GST Act or Rules requiring such documents to prove movement of goods.
Jurisdictional
Error by State GST Authorities
On the issue of
jurisdiction, the Court accepted the petitioner’s contention that the
proceedings were initiated by State GST authorities despite the petitioner
falling under Central GST jurisdiction. The Court noted that no
cross-empowerment notification, except for refund matters under Section 54, was
placed on record by the State. In the absence of any such notification, the
State authorities could not assume jurisdiction. This jurisdictional defect
alone was sufficient to vitiate the proceedings.
Reliance on
Earlier Judgments
The Court relied
extensively on earlier Division Bench judgments of the Allahabad High Court in HCL
Infotech Ltd., Ajnara Realtech Ltd., and Vadilal Enterprises Ltd.,
which consistently held that Section 74 proceedings cannot be sustained without
specific findings of fraud or suppression. The Court also referred to CBIC
Circular dated 13 December 2023, which clearly cautions officers against
invoking Section 74 mechanically. The Supreme Court’s interpretation of
“suppression” and “wilful misstatement” in Continental Foundation Joint
Venture was also relied upon.
Final
Decision
The High Court held that
the impugned assessment order dated 31 May 2023 and the appellate order dated
10 January 2025 were unsustainable in law. Both orders were quashed. The writ
petition was allowed in toto, and the Court directed that any amount deposited
by the petitioner pursuant to the impugned proceedings shall be refunded in
accordance with law within one month from the date of production of the
certified copy of the order.
Conclusion
This judgment is a clear
message to GST authorities that Section 74 is not a routine tool and cannot be
invoked merely on suspicion or survey-based assumptions. Fraud must be pleaded,
proved, and supported by evidence — warna pura case hawa ho jata hai. The
ruling strengthens taxpayer protection against arbitrary GST enforcement and
reinforces that jurisdictional discipline and statutory safeguards cannot be
bypassed in the name of revenue collection. For bona fide taxpayers, this
decision is a big relief and a strong precedent.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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