In a significant judgment, the Allahabad High Court has ruled that availing Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime without actual supply of goods or services constitutes fraud and is squarely covered under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017.
Case Background
The decision came in the matter of M/s Reliable Trading Company vs. Joint Director, DGGI Zonal Unit, Meerut [WRIT TAX No. – 1177 of 2025], where the petitioner challenged a Show Cause Notice (SCN) issued by the Directorate General of GST Intelligence (DGGI) and the subsequent order passed by the Additional Commissioner, CGST, Meerut.
M/s Reliable Trading Company, a proprietorship firm engaged in the heavy metals trade, sought to quash the proceedings and also requested an exemption from the mandatory 10% pre-deposit requirement under Section 107(6)(b) of the CGST Act, citing financial difficulties.
Department’s Allegations
The GST registration of the petitioner was cancelled with effect from 08.02.2021. The tax authorities launched proceedings under Section 74, alleging that the firm was involved in a fraudulent scheme involving fake invoices and non-existent suppliers, without any actual movement of goods.
According to the investigation, the petitioner procured invoices from eight bogus firms, accompanied by e-way bills and transportation documents. However, physical inspections revealed that the alleged suppliers were fictitious, their premises non-existent, and the funds involved were either withdrawn in cash or rerouted. Transporters involved in the transactions could not be traced, reinforcing the suspicion of circular trading.
Petitioner’s Stand
The petitioner denied the allegations and demanded cross-examination of the concerned parties. It was argued that since documents were available and payments were made through banking channels, the transactions were legitimate. The petitioner also contended that the invocation of Section 74 was unwarranted as there was no fraud or suppression of facts.
Court’s Findings
The division bench, comprising Chief Justice Arun Bhansali and Justice Kshitij Shailendra, upheld the department’s action and dismissed the writ petition. Relying on precedents including State of Karnataka vs. Ecom Gill Coffee Trading Pvt. Ltd. and Shiv Trading vs. State of U.P., the court emphasized that merely producing invoices and making payments through banks is insufficient proof of actual supply.
The court ruled that fraudulent ITC claims based on fake firms and non-existent supply fall squarely under Section 74, which addresses fraud, wilful misstatement, or suppression of facts.
Conclusion
The Allahabad High Court held that the petitioner has access to an alternative statutory remedy and cannot bypass it by filing a writ. The bench also rejected the request for exemption from the mandatory pre-deposit, stating that such relief is contrary to the provisions of the CGST Act.
Verdict: Writ petition dismissed. Petitioner advised to pursue alternative legal remedy.