The Allahabad High Court has strongly criticised tax authorities for acting contrary to the intent of the Goods and Services Tax (GST) regime, which was introduced to simplify business operations in India. The court observed that revenue officers were misusing provisions of the GST Act to harass genuine taxpayers.
Justice Piyush Agrawal, while allowing a writ tax petition filed by Safecon Lifescience Private Limited, held that when the actual movement of goods has been duly established and remains unrebutted, initiating proceedings under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017, is wholly unjustified.
The petitioner company had carried out transactions with Unimax Pharma Chem, Bhiwandi, Maharashtra, for which invoices, e-way bills, transport bills and banking records were submitted. Tax returns filed by the supplier also reflected the said transactions.
Despite this, the company was issued a notice under Section 74 of the GST Act alleging wrongful availment of input tax credit (ITC), on the ground that the supplier’s registration had been cancelled. Both the petitioner’s reply and subsequent appeal were rejected by the authorities.
The petitioner argued that the supplier’s GSTR-3B showed tax deposits on the impugned transactions, and all relevant supporting documents had been furnished before the department and the court.
Justice Agrawal noted that while the petitioner had produced all required records, the authorities gave no weight to the same. Importantly, the GST returns of both the supplier and petitioner reflected the transactions, which were not denied by the department.
“No irregularity in the transactions between the petitioner and the supplier was recorded in the material available before the authority. Further, the material relied upon by the authority ought to have been provided to the petitioner,” the court observed.
The bench also referred to the Central Government’s circular dated December 13, 2023, which clarified that Section 74 proceedings can only be invoked in cases of fraud, wilful misstatement or suppression of facts to evade tax—not otherwise.
The court’s judgment underscores the principle that mere cancellation of a supplier’s registration cannot, by itself, justify penal action against a bona fide purchaser who has complied with GST procedures and furnished proof of transactions.
By setting aside the proceedings against Safecon Lifescience, the Allahabad High Court has sent a clear message that misuse of anti-evasion provisions under GST will not be tolerated. The ruling reinforces the objective of GST as a taxpayer-friendly reform aimed at facilitating ease of doing business.
