SCN under section 74 ignoring documentary evidences in case of allegation of fake ITC is invalid. Toll Plaza receipts are not required to establish genuineness of purchase.
Date & Year of Judgment
17 December 2025 (Reserved on 10.09.2025)
The judgment strengthens the growing judicial trend of strictly policing Section 74 invocation and jurisdictional overreach in alleged circular trading cases.
Case Reference
M/s Raghuvansh Agro Farms Ltd. vs. State of U.P. & OthersWrit Tax No. 3829 of 2025
Before the Allahabad High Court
1. Main Issue Involved
Whether proceedings under Section 74 can be sustained in absence of specific findings of fraud, wilful misstatement or suppression of facts.
Whether State GST authorities had jurisdiction in absence of cross-empowerment notification.
Whether ITC can be denied on allegation of circular trading despite invoices, e-way bills, bank payments and GST return reflection.
Whether adverse inference can be drawn solely for non-production of toll plaza receipts.
The Court treated lack of fraud findings and lack of jurisdiction as fatal defects rather than curable irregularities.
Analogous reference to Section 11A of Central Excise Act
Supreme Court judgment in Continental Foundation (interpretation of “suppression”)
Supreme Court decision in Ecom Gill Coffee Trading Pvt. Ltd.
The Court relied heavily on jurisprudence defining “wilful suppression” to narrow the scope of Section 74.
3. Facts of the Case
A survey was conducted in January 2019 and proceedings under Section 74 were initiated alleging circular trading and wrongful ITC availment.
The petitioner:
Produced tax invoices, e-way bills, bilty, transporter ledger, bank statements.
Demonstrated that transactions were reflected in GSTR-1, GSTR-2A and GSTR-3B.
Showed that one supplier’s proceedings were already set aside by CGST authorities.
The State GST authority nonetheless confirmed demand and penalty. Appeal was dismissed.
The entire demand rested on suspicion of circular trading rather than rebuttal of documentary evidence.
4. Petitioner’s Submissions
No ingredients of fraud, wilful misstatement or suppression were recorded.
State GST lacked jurisdiction due to absence of cross-empowerment notification.
Supplier was registered at the time of transaction; Section 16 conditions satisfied.
Toll plaza receipts are not mandated under GST law.
Payments were made through banking channels and fully disclosed.
The defence combined jurisdictional challenge with evidentiary rebuttal, attacking both foundation and merits.
5. Department’s Submissions
Petitioner engaged in circular trading.
No actual physical movement of goods.
Failure to produce toll plaza receipts casts doubt on genuineness.
Relied on Ecom Gill Coffee Trading Pvt. Ltd. to justify denial of ITC.
The department attempted to elevate absence of toll receipts into proof of bogus transactions.
6. Analysis and Findings of the Court
A. Section 74 – Jurisdictional Preconditions
The Court held that:
Section 74 can be invoked only where fraud, wilful misstatement or suppression with intent to evade tax is specifically alleged and evidenced.
Neither the SCN nor the adjudication order recorded such categorical findings.
Absence of foundational ingredients renders proceedings without jurisdiction.
The Court relied upon:
Division Bench rulings in HCL Infotech, Ajnara Realtech, Vadilal Enterprises.
Supreme Court decision in Continental Foundation holding that “suppression” requires intent (mens rea).
B. Cross-Empowerment
The Court noted that no material was placed to establish jurisdiction of State GST authority where assessee fell under Central jurisdiction.
C. Circular Trading Allegation
The Court observed:
Transactions were supported by invoices, e-way bills, GSTR reflection and banking trail.
Proceedings against supplier were already set aside.
No material evidence proving circular trading was produced.
D. Toll Plaza Receipts
The Court categorically held:
No provision under GST law mandates production of toll receipts.
Drawing adverse inference on that basis is perverse.
E. Distinguishing Ecom Gill
The Court held that where documentary evidence exists and is reflected on portal, Ecom Gill does not apply.
The Court drew a clear line between suspicion-based circular trading allegations and evidence-based adjudication.
7. Final Judgment / Operative Directions
Impugned assessment and appellate orders quashed.
Entire Section 74 proceedings set aside.
Refund of deposited amount directed within one month.
The Court granted complete relief rather than remand, indicating fundamental illegality in proceedings.
8. Similar / Related Judgments & Counter Judgments
Supporting Judgments
HCL Infotech Ltd. (Allahabad HC)
Ajnara Realtech Ltd.
Vadilal Enterprises Ltd.
Khurja Scrap Trading Company
Safecon Lifescience Pvt. Ltd.
These decisions consistently hold:
Section 74 requires strict proof of intent.
ITC cannot be denied merely because supplier later found non-existent.
Registration status at time of transaction is relevant.
Counter Position
Ecom Gill Coffee Trading Pvt. Ltd. (SC) — where transactions were found unsupported by cogent evidence.
The Court clarified that Ecom Gill applies only where evidence is lacking, not where portal-compliant documentation exists.
9. CA BTA Insights (Professional Takeaway)
This judgment is highly valuable for litigation involving:
Alleged circular trading without concrete evidence.
Section 74 notices lacking fraud findings.
Jurisdictional challenge based on cross-empowerment.
Cases where department demands extraneous documents (like toll receipts).
Situations where supplier’s proceedings are independently dropped.
For drafting strategy:
Always demand specific fraud findings in SCN.
Emphasize registration status at time of transaction.
Highlight banking trail + GSTR-2A/2B reflection.
Challenge jurisdiction where cross-empowerment is absent.
The ruling significantly raises the evidentiary threshold for sustaining Section 74 proceedings in ITC denial cases. Copy of the judgement is attached here.