Section 74 GST Notice? HC Rules Proof of Fraud is Mandatory

Section 74 GST Notice Case Law | Proof of Fraud Mandatory

In a significant relief for businesses across Uttar Pradesh and the Delhi NCR region, the Allahabad High Court has delivered a landmark judgment curbing the mechanical invocation of fraud proceedings by GST authorities.

The ruling in Raghuvansh Agro Farms Ltd. v. State of U.P. (Writ Tax No. 3829 of 2025) clarifies two critical issues that frequently harass honest taxpayers: the demand for “Toll Plaza Receipts” to prove the movement of goods, and the jurisdiction of State officers over Central GST taxpayers.

If you have received a notice under Section 74 of the UPGST/CGST Act alleging circular trading or fake invoices, this judgment is a powerful tool for your defense.

The Case: Raghuvansh Agro Farms Ltd. v. State of U.P.

• Citation: Writ Tax No. 3829 of 2025
• Court: Allahabad High Court
• Date of Decision: 17 December 2025

Brief Facts

The petitioner, a registered company, was subjected to a survey by State GST authorities. Despite producing valid tax invoices, E-way bills, bilties (transport documents), and bank statements showing payments, the Department initiated proceedings under Section 74 (invoked for fraud/suppression of facts).

The Department’s argument relied heavily on two points:

1. The taxpayer failed to produce Toll Plaza Receipts to prove the physical movement of goods.
2. Allegations of “circular trading” justified the penalty, even though the taxpayer was under the administrative jurisdiction of the Central GST officers, not the State.

Key Takeaways & The Court’s Ruling

The High Court quashed the assessment orders and ruled in favor of the taxpayer on three major grounds:

• Toll Receipts Are Not Mandatory: The Court held that the GST Act and Rules do not mandate the production of toll plaza receipts. If a taxpayer has produced primary evidence—Tax Invoices, E-Way Bills, Bilties, and Bank Statements—the Department cannot draw an “adverse inference” (assume guilt) simply because toll receipts are missing.

Implication: Taxpayers cannot be denied Input Tax Credit (ITC) solely for lacking toll receipts if other documents are in order.

• Section 74 Requires Specific Proof of Intent: Section 74 allows for higher penalties and extended limitation periods, but only where there is fraud, willful misstatement, or suppression of facts. The Court ruled that authorities cannot invoke Section 74 mechanically. The Show Cause Notice (SCN) must specifically allege and provide material evidence of the intent to evade tax. Mere suspicion of “circular trading” is not enough.
• Jurisdiction (Cross-Empowerment): The Court reiterated that without a specific notification for “cross-empowerment,” State GST authorities cannot adjudicate cases assigned to Central GST jurisdiction, except in specific refund matters. This checks the power of State officers to prosecute Central jurisdiction taxpayers arbitrarily.

Why This Matters for Delhi NCR Businesses

For businesses in Noida, Greater Noida, and Ghaziabad, “circular trading” notices are becoming increasingly common. This judgment provides a clear shield:

1. Documentation Standard: Your E-way bills and bank records are your primary defense. Maintain them meticulously.
2. Jurisdictional Check: Always check if the officer issuing the notice actually has jurisdiction over your GSTIN (State vs. Central).
3. Burden of Proof: The burden is on the Department to prove fraud; they cannot just allege it to bypass standard limitation periods.

Actionable Advice for Clients

• Review Your Notices: If you have received a notice u/s 74, check if it contains specific evidence of fraud. If it is vague, it may be legally unsustainable.
• Audit Your Logistics Proof: While toll receipts are not mandatory, we recommend maintaining a “Movement File” containing E-way bills, weighbridge slips, and FastTag statements to make your case airtight.
• Check Jurisdiction: Before replying to any SCN, verify if the issuing officer is from your jurisdictional authority (State or Centre).

Conclusion

The Raghuvansh Agro Farms verdict reinforces that the GST department cannot operate on assumptions. As long as your transaction trail—invoice to payment—is clear, the absence of ancillary documents like toll receipts cannot be used to label your business as fraudulent.

Do you have questions about a Section 74 notice or GST compliance? At Kunal Kapoor & Associates, we specialize in defending businesses against arbitrary tax demands. Contact us today to review your case.