Allahabad High Court Rules: Absence of Toll Receipts No Ground for ITC Denial; Section 74 Invocation Requires Specific Proof of Fraud

In a significant judicial development that offers substantial relief to the business community, the Allahabad High Court has delivered a landmark judgment concerning the admissibility of Input Tax Credit (ITC) and the procedural sanctity required for invoking extended periods of limitation under the GST regime. The Court, in the matter of M/s Raghuvansh Agro Farms Ltd. vs. State of U.P. & Ors., categorically held that the revenue department cannot deny ITC merely due to the non-production of toll plaza receipts if other statutory documents substantiate the transaction. Furthermore, the ruling reinforces the principle that Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) cannot be invoked mechanically without foundational evidence of fraud or willful misstatement.

This comprehensive analysis delves into the factual matrix, the legal arguments presented, and the critical findings of the High Court, providing a roadmap for assessees facing similar litigations.

The Core Dispute: Allegations of Circular Trading

The genesis of the dispute lay in an investigation initiated by the revenue authorities against the assessee, M/s Raghuvansh Agro Farms Ltd. The department alleged that the assessee was involved in "circular trading"—a practice where invoices are issued to inflate turnover without the actual physical movement of goods.

Based on these allegations, the department sought to deny the ITC availed by the assessee. The primary ground for this denial was the assessee's inability to produce toll plaza receipts to prove that the goods had physically moved from the supplier to the recipient. The revenue authorities drew an adverse inference, suggesting that the absence of such receipts indicated that the transactions were paper-based shams designed to defraud the exchequer.

Additionally, the authorities initiated proceedings under Section 74 of the Act, which deals with the determination of tax not paid or short paid by reason of fraud, willful misstatement, or suppression of facts.

The Assessee’s Defense: Documentary Evidence vs. Presumptions

The assessee challenged the revenue's stance by presenting a robust defense based on statutory compliance and documentary evidence. The key arguments raised by the assessee included: