The ruling was delivered by Justice Piyush Agrawal, who was hearing a writ petition filed by Safecon seeking to set aside orders of the Deputy Commissioner, Commercial Tax, Agra, and the Additional Commissioner (Appeal)-II, State Tax, Agra.
Safecon Lifescience, engaged in pharmaceutical trading and manufacturing, purchased medicines in April 2021 from M/s Unimax Pharma Chem, Maharashtra. The purchases were supported by invoices, e-way bills, transport documents, and payments made through banking channels. The supplier also filed GSTR-1 and GSTR-3B returns showing the tax.
Despite this, the Deputy Commissioner, Commercial Tax, Agra, issued a notice under Section 74 alleging wrongful ITC claims since the supplier’s registration was later cancelled. Safecon’s reply was rejected, and the Additional Commissioner (Appeal) upheld the order, relying on intelligence inputs that the supplier had sourced from non-compliant dealers.
Senior counsel for the petitioner contended that the company had made genuine purchases supported by documentary evidence and that all tax payments were reflected in GST returns. It was argued that the authorities ignored vital evidence and initiated Section 74 proceedings without establishing any fraud or misstatement. Reliance was also placed on a December 2023 circular clarifying that Section 74 applies only in cases of fraud or suppression.
The state authorities argued that since the supplier’s transactions were questionable, Safecon’s ITC could not be allowed.
Court’s observations:
Justice Piyush Agrawal held that the petitioner had proved actual movement of goods, banking payments, and return filings, none of which were rebutted by the department. The court stressed:
“GST regime has been brought by the Central Government for ease of business in the country but the revenue officers are bend upon to act against the very theme/ intend of it.”
The bench also criticized the reliance on unverified intelligence reports, stating that such material must be properly examined before being used against a registered dealer. Importantly, the court found that at no stage had the authorities recorded any finding of fraud, willful misstatement, or suppression of facts.
Final ruling:
Quashing the orders dated 12 January 2022 and 20 December 2022, the court allowed the writ petition, concluding that Section 74 proceedings against Safecon were unjustified in the absence of fraud or intent to evade tax.
In final ruling the court held,
“In view of the above discussions… the impugned orders cannot be sustained and are hereby quashed. The writ petition succeeds and is allowed.”
To view the official order, click the link below:
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