In a significant relief to a pharma company, the Allahabad High Court has set aside orders passed by the State GST authorities that had denied input tax credit (ITC) and initiated proceedings under Section 74 of the UPGST Act. The court, while allowing the writ petition filed by M/s Safecon Lifescience Private Limited, came down heavily on revenue officers for acting "with closed eyes" without verifying facts.
Background
Safecon, engaged in wholesale trading and manufacturing of medicines, had purchased goods from M/s Unimax Pharma Chem, based in Bhiwandi, Maharashtra. At the time of supply in April 2021, Unimax was a registered dealer holding both GST registration and a valid drug licence. The purchases were supported by tax invoices, e-way bills, transport bilty, and payments made entirely through banking channels.
Read also:- Chhattisgarh High Court dismisses multiple petitions after counsel withdraws citing lack of instructions
Despite this, the Deputy Commissioner, Commercial Tax, Agra, issued a show cause notice alleging that Unimax's GST registration was later cancelled and that it had sourced goods from firms that had not deposited taxes. Based on this, the authorities denied Safecon the benefit of ITC. The first appellate authority upheld this view in December 2022, prompting Safecon to approach the High Court.
Court's Observations
Justice Piyush Agrawal, after hearing both sides, scrutinised the record and noted that the petitioner had submitted all documentary evidence - purchase orders, tax invoices, e-way bills, transport records, and proof of GST returns being filed by both the buyer and the supplier.
The Court found that these materials were completely ignored by the tax authorities.
"Once actual movement of goods as well as payment of tax have been proved by the petitioner, to which no rebuttal has been brought on record at any stage, proceedings under Section 74 of the Act cannot be justified," the bench observed.
The Court also criticised the authorities for relying solely on an internal report from the Central Intelligence Unit without verifying its accuracy or even sharing it with the taxpayer.
Read also:- Bombay High Court Denies Bail to Navi Mumbai Businessman Accused of RS 7 Crore Investment Fraud
Justice Agrawal noted,
"The information sent by the Central Intelligence Unit must be verified by the authority before using the same against the registered dealer."
Importantly, the bench referred to a recent circular dated 13 December 2023, clarifying that Section 74 proceedings can be invoked only in cases of fraud, wilful misstatement, or suppression of facts to evade tax. Mere non-payment or doubts about the supplier’s past dealings are not enough.
Citing the Supreme Court’s ruling in Continental Foundation Joint Venture and its own earlier decision in Khurja Scrap Trading Company, the Court emphasised that terms like ‘suppression’ and ‘wilful misstatement’ imply a deliberate intent to evade tax, which was absent in this case.
Read also:- Madhya Pradesh High Court Directs State Bar Council to Register Advocate Without Charging Transfer Fee
Decision
Concluding that there was no evidence of fraud, wilful misstatement, or suppression of facts, the High Court quashed the orders passed by the Additional Commissioner (Appeal) dated 20 December 2022 and the Deputy Commissioner (Commercial Tax) dated 12 January 2022.
With that, the writ petition filed by Safecon Lifescience Private Limited was allowed.
Case Title: M/s Safecon Lifescience Private Limited vs Additional Commissioner Grade-2 (Appeal)-II, State Tax, Agra & Another
Case Number: Writ Tax No. 389 of 2023
