Section 74 Proceedings Invalid Without Fraud Allegation; State GST Lacks Jurisdiction: Allahabad HC:

Section 74 Proceedings Invalid Without Fraud Allegation; State GST Lacks Jurisdiction: Allahabad HC The petitioner, M/s Raghuvansh Agro Farms Ltd., a private limited company engaged in supply of agricultural goods and areca nuts, was registered under GST. A survey was conducted on 22.01.2019, pursuant to which proceedings under Section 74 of the GST Act were initiated by the State GST authorities. A show-cause notice in Form GST DRC-01 dated 07.04.2021 was issued, followed by further notices, culminating in an adjudication order dated 31.05.2023, passed without granting a personal hearing. The appeal against the said order was dismissed on 10.01.2025. The petitioner contended that it fell under Central GST jurisdiction and that no cross-empowerment notification existed authorizing State GST officers to initiate proceedings. Main Issue: Whether proceedings under Section 74 of the GST Act could be sustained in the absence of specific allegations and findings of fraud, willful misstatement or suppression of facts, and whether State GST authorities had jurisdiction in the absence of cross-empowerment. HC's Verdict: The Allahabad High Court held that initiation of proceedings under Section 74 is jurisdictionally dependent upon the existence of specific allegations of fraud, willful misstatement, or suppression of facts to evade tax. In the present case, neither the show cause notice nor the adjudication order recorded any such categorical findings supported by evidence. Consequently, the proceedings were held to be without jurisdiction. The Court further held that the State GST authorities failed to establish their jurisdiction, particularly when the petitioner fell under Central GST jurisdiction, and no cross-empowerment notification was produced. The allegation of circular trading was rejected, as all transactions were supported by tax invoices, e-way bills, bilties, GSTR returns and banking records, demonstrating actual movement of goods. Reliance on Supreme Court judgment in Ecom Gill Coffee Trading Pvt. Ltd. was held to be misplaced on facts. Thus, both the adjudication order dated 31.05.2023 and the appellate order dated 10.01.2025 were quashed. The writ petition was allowed with a direction to refund any amount deposited by the petitioner within one month. To Read Full Judgment, Download PDF Given Below