M/s Raghuvansh Agro Farms Ltd. vs State of Uttar Pradesh &
Others
(By Adv. (CS) Yogesh
Verma)
Brief
Background of the Case
M/s Raghuvansh Agro Farms
Ltd., a registered GST assessee engaged in the business of supply of
agricultural goods and areca nuts, was subjected to a survey by the GST
authorities on 22 January 2019. Based on the survey, a show cause notice under Section
74 of the UPGST Act was issued alleging wrongful availment of Input Tax
Credit (ITC) and circular trading.
Despite submission of
detailed replies along with documentary evidence such as tax invoices, e-way
bills, bilties, bank statements, and GST returns, the adjudicating authority
passed an order confirming tax, interest, and penalty. The appeal filed by the
assessee was also dismissed, leading to the filing of the present writ petition
before the Allahabad High Court.
· Court:
High
Court of Judicature at Allahabad
· Bench:
Hon’ble
Justice Piyush Agrawal
· Writ
Petition No.: Writ Tax No. 3829 of 2025
· Date
of Judgment: Reserved on: 10 September 2025
Delivered on: 17 December 2025
Key Issues
Before the High Court
The High Court was
primarily called upon to decide the following issues:
1. Whether
proceedings under Section 74 can be initiated in the absence of specific
allegations and findings of fraud, wilful misstatement, or suppression of
facts.
2. Whether
State GST authorities could initiate proceedings against a taxpayer
falling under Central GST jurisdiction in the absence of any cross-empowerment
notification.
3. Whether
ITC can be denied merely on allegations of circular trading despite
availability of invoices, e-way bills, banking transactions, and GST returns.
4. Whether
adverse inference can be drawn for non-production of toll plaza receipts,
when such requirement is not prescribed under the GST law.
Submissions
of the Petitioner
The petitioner contended
that:
- Proceedings under Section 74 were
initiated mechanically without mentioning any ingredient of fraud or
intent to evade tax.
- All purchases and sales were
supported by valid tax invoices, e-way bills, bilties, and payments
through banking channels.
- Transactions were duly reflected in GSTR-1,
GSTR-2A, and GSTR-3B.
- The allegation of circular trading
was baseless and unsupported by evidence.
- The State GST authorities lacked
jurisdiction, as the petitioner was under Central GST jurisdiction and no
cross-empowerment notification existed except for refund matters under
Section 54.
- Denial of ITC on the ground of
non-submission of toll receipts was arbitrary, as GST law does not mandate
such documents.
Submissions
of the Revenue
The State contended that:
- The petitioner was involved in
circular trading without actual movement of goods.
- Non-production of toll plaza receipts
cast doubt on physical movement of goods.
- Reliance was placed on the Supreme
Court judgment in Ecom Gill Coffee Trading Pvt. Ltd.
Findings
and Observations of the High Court
1. Section 74 Can Be
Invoked Only When Fraud Is Alleged and Established
The Court emphatically
held that Section 74 is a special provision which can be invoked only
when tax has been short paid or ITC wrongly availed by reason of fraud,
wilful misstatement, or suppression of facts.
The Court observed that
neither the show cause notice nor the adjudication order recorded any clear
finding or evidence of fraud. In absence of these foundational requirements,
the entire proceedings were held to be without jurisdiction.
2. Jurisdiction Cannot Be
Assumed Without Cross-Empowerment
The Court noted that the
petitioner fell under Central GST jurisdiction, and no material was
placed on record by the State to justify how State authorities acquired
jurisdiction.
In absence of any
recommendation of the GST Council or valid notification for cross-empowerment
(except limited to refunds), the proceedings initiated by State GST authorities
were held to be invalid.
3. Genuine Transactions
Cannot Be Disbelieved Without Evidence
The Court found that:
- All transactions were reflected in
statutory returns.
- Payments were made through banking
channels.
- E-way bills, invoices, and transport
documents were available.
Merely branding
transactions as “circular trading” without rebutting documentary evidence was
held to be arbitrary and unsustainable.
4. Toll Plaza Receipts
Are Not Mandatory Under GST Law
The Court categorically
rejected the revenue’s insistence on toll plaza receipts. It held that:
- There is no provision under the
GST Act or Rules mandating production of toll receipts.
- Once e-way bills, invoices, bilties,
and transporter payments are available, adverse inference cannot be drawn.
Such findings of the
authorities were termed perverse and without legal basis.
5. Proceedings Against
Supplier Dropped – No Adverse Inference Against Buyer
The Court also noted that
proceedings against one of the suppliers (M/s Sibri Traders) had already been
set aside by CGST authorities. Once the supplier itself was exonerated, no
adverse inference could survive against the petitioner.
Reliance on
Earlier Judgments
The High Court relied
upon and reiterated principles laid down in:
- HCL Infotech Ltd.
- M/s Ajnara Realtech Ltd.
- M/s Vadilal Enterprises Ltd.
- Safecon Lifescience Pvt. Ltd.
- Khurja Scrap Trading Company
It also referred to the CBIC
Circular dated 13.12.2023, clarifying that Section 74 cannot be invoked in
absence of fraud.
Final
Decision
The Allahabad High Court
held that:
- Initiation of proceedings under
Section 74 was illegal and without jurisdiction.
- Orders passed by the adjudicating
authority and appellate authority were unsustainable.
- Entire proceedings were quashed.
The writ petition was allowed,
and the Court directed that any amount deposited by the petitioner be
refunded within one month from production of a certified copy of the order.
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.
Press On Click Here To Download Order File
Click here
