‘GST Meant for Ease of Business, Not Harassment’: Allahabad HC Quashes Tax Orders Against Pharma Firm

The bench of Justice Piyush Agrawal passed the order on September 9, 2025, in favour of M/s Safecon Lifescience Pvt. Ltd., a wholesale trader of medicines, which had challenged the orders of the Deputy Commissioner, Commercial Tax, Agra, and the Additional Commissioner, State Tax, Agra.

The dispute centred on the firm’s claim of Input Tax Credit (ITC) for purchases made in April 2021 from M/s Unimax Pharma Chem, a Maharashtra-based supplier that was at the time duly registered under GST and held a valid drug licence. Safecon contended that it had fulfilled all legal requirements, including raising invoices, generating e-way bills, and making payments through banking channels. The supplier, it added, had also filed its returns in GSTR-1 and GSTR-3B reflecting tax payments.

However, the tax department alleged that Unimax Pharma Chem’s registration had been cancelled and that its own suppliers had not deposited tax. On this basis, authorities claimed Safecon’s ITC was wrongly availed and issued a notice under Section 74 of the UPGST Act, which deals with fraud, wilful misstatement, or suppression of facts. Both the assessing authority and the appellate authority rejected the firm’s defence, leading to the present writ petition.

Safecon argued that the authorities ignored crucial material proving genuine purchases and movement of goods. Its counsel relied on a Central Board of Indirect Taxes and Customs (CBIC) circular dated December 13, 2023, which clarified that proceedings under Section 74 could only be invoked in cases involving fraud or deliberate misstatements.

Agreeing with this contention, the court noted that the tax department had relied blindly on an intelligence report from the Central Excise and GST unit in Vadodara without verifying facts or providing the report to the petitioner. “It is the duty of the officers to verify facts with all angles before using them against a registered dealer,” court remarked.

The bench further stressed that no finding of fraud, wilful misstatement, or suppression of facts was recorded at any stage. In the absence of such evidence, Section 74 proceedings could not be justified.

"In the case in hand the authorities have neither recorded any findings of fraud nor wilful misstatement nor suppression of fact to evade payment of tax, therefore, the proceedings under section 74 of the Act out not to have been initiated against the petitioner," court noted. 

Court relied on earlier judgments, including M/s Khurja Scrap Trading Company, and Supreme Court decisions on analogous provisions in excise law, to hold that intent to evade tax is a necessary element before invoking extended powers.

"The Apex Court has clearly stated that incorrect statement, unlessvmade with the knowledge that it was not correct, would will not be a ground of wilful misstatement or suppressionand no inference can be drawn if full information has been disclosed without intent to evade payment of tax," court clarified. 

“The GST regime has been brought by the Central Government for ease of business in the country but the revenue officers are bent upon to act against the very theme and intent of it,” the judgment stated, pulling up officials for harassment of dealers.

"When it was noticed by the Government that under the garb of Section 74 of the Act various dealers are being harassed, issued a circular dated 13.12.2023 where it has specifically been stated that proceedings under section 74 of the Act can be initiated if there is a fraud or willful mis-statement or suppression of fact to evade payment of tax and not otherwise," court noted. 

Accordingly, the orders of the Deputy Commissioner (January 12, 2022) and the Additional Commissioner (December 20, 2022) were quashed, and Safecon’s writ petition was allowed.