GST: Clear Evidence of Fraud Required for Section 74 Action
The Allahabad High Court has held that the tax authorities cannot take action under Section 74 of the GST Act unless they have clear findings of fraud.
A survey was conducted on the business premises of the petitioner, S.A. Iron And Alloys Pvt. Ltd., which revealed a mismatch in stock, including an excess of 220 tons of sponge iron. Based on this, a penalty order under section 130(3) of the GST Act The Revenue then imposed a penalty under Section 130(3) of the GST Act, accusing the petitioner of tax evasion, claiming that the petitioner suppressed facts to evade tax. The petitioner filed an appeal before the appellate authority, which partly allowed the appeal. Therefore, the petitioner approached the Allahabad High Court.
The petitioner submitted that the revenue has no basis to initiate the proceedings under section 74 of the GST Act.
The Allahabad High Court cited section 74, which deals with the initiation of proceedings for reasons of fraud, misstatement and suppression of fact with the intention of evading the tax. The court also cited the decision in M/s Diamond Steel (supra), which concluded that to take action under Section 74, the revenue must provide clear evidence of goods being supplied and tax not being paid and clear proof of fraud, wilful misstatement, or suppression of facts with the intent to evade tax.
The court observed that neither the revenue nor the Appellate Authority have mentioned any findings against the petitioner, which shows that the petitioner has claimed ITC by reason of fraud, misstatement, or suppression of fact with an intention to evade taxes. Therefore, the court allowed the writ petition and directed the authority to refund any amount deposited by the petitioner with interest at 4% per annum within two months.
Case Citation: M/S S.A. Iron And Alloys Pvt. Ltd. Vs. State Of U.P (Allahabad HC); WRIT TAX No. – 735 of 2023; 06/11/2025
