Critical High Court Judgments Under GST: Essential Insights on Section 74, ITC, Penalties, and Procedural Safeguards
Introduction
The Goods and Services Tax regime in India has evolved significantly, transitioning into a mature framework where judicial interpretation plays a pivotal role in defining the boundaries between revenue recovery and assessee protection. High Courts across the country have delivered several crucial judgments that establish vital principles concerning the invocation of Section 74, Input Tax Credit denial, imposition of penalties, recovery mechanisms, electronic invoicing compliance, and adherence to natural justice principles.
This comprehensive analysis consolidates landmark judicial pronouncements that carry substantial implications for GST consultants, practitioners, and legal advisors. Understanding these rulings enables better client counseling during departmental proceedings, audit responses, and litigation management. The judgments discussed herein provide essential guardrails against arbitrary departmental actions while clarifying compliance requirements.
Limitations on Invoking Section 74 in Absence of Fraudulent Intent
Raghuvansh Agro Farms Ltd. v. State of U.P. (2026) 38 Centax 53 (All.) | Writ Tax No. 3829 of 2025, decided on 17-12-2025
The Allahabad High Court delivered a watershed judgment that significantly restricts the revenue department's ability to invoke Section 74 of the CGST/UPGST Act without establishing the essential ingredients prescribed under the provision.
Material Facts and Background
The assessee faced allegations of participating in circular trading schemes based on survey operations conducted by the department. Relying solely on these survey findings, authorities issued a show cause notice under Section 74 and subsequently confirmed a substantial tax demand along with penalties.
The assessee challenged this action, demonstrating through comprehensive documentation that all transactions were genuine, properly recorded, and duly reflected in the GST portal returns.
Judicial Analysis and Holdings
The High Court conducted an exhaustive examination of the procedural and substantive aspects of the case and arrived at the following critical conclusions:
Absence of Statutory Prerequisites: The Court observed that neither the show cause notice nor the final adjudication order contained any categorical finding regarding fraud, deliberate misstatement, or suppression of material facts. These elements constitute the foundational requirements for invoking Section 74.
Substantiation Through Documentary Evidence: The assessee had maintained complete documentation including:
- Proper reflection of transactions in GSTR-1, GSTR-2A, and GSTR-3B
- Valid tax invoices for all supplies
- E-way bills evidencing actual movement of goods
- Bank statements confirming payment flows
- Physical movement records
Jurisdictional Infirmity: The proceedings were initiated by State GST authorities despite the assessee falling under Central GST jurisdiction. Furthermore, no valid notification for cross-empowerment existed, rendering the proceedings void ab initio.
Violation of Natural Justice: The assessee was denied an opportunity for personal hearing, constituting a fundamental breach of procedural fairness requirements.
Legal Principles Established
The judgment reinforces several critical principles:
- Survey-based suspicions and assumptions cannot substitute for concrete evidence establishing mens rea
- When transactions are fully disclosed in statutory returns and supported by documentation, presumption favors the assessee
Section 74represents an exceptional provision requiring strict adherence to statutory conditionsSection 73remains the default provision for demanding tax unless fraudulent intent is affirmatively established
Practical Implications for Practitioners
This ruling provides robust defense arguments when departments mechanically invoke Section 74 without proper application of mind to statutory requirements. Practitioners should:
- Emphasize the distinction between
Section 73andSection 74in preliminary submissions - Demand specific articulation of fraud or suppression allegations
- Present comprehensive documentation establishing transaction genuineness
- Challenge jurisdictional validity of proceedings at the threshold
- Insist upon personal hearing opportunities