The Hon’ble Allahabad High Court in the case of M/s Vadilal Enterprises Ltd. v. State of U.P. & Ors. [Writ Tax No. 2486 of 2025, dated May 23, 2025] held that a show cause notice issued under Section 74 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) without alleging fraud, wilful misstatement, or suppression is without jurisdiction and liable to be quashed.
Facts:
Vadilal Enterprises Ltd. (“the Petitioner”) was issued a show cause notice dated February 25, 2025 under Section 74 of the CGST Act, proposing a demand of ₹260,15,37,910.
The State of Uttar Pradesh (“the Respondent”) had earlier issued a show cause notice under Section 73 of the CGST Act on the same issues. The Petitioner had responded to the same with the necessary documents. While disposing of the show cause notice issued under Section 73 on February 22, 2025, the authorities recorded a difference in documents submitted during audit and those submitted during proceedings under Section 73 and stated that a fresh notice would be issued.
The Petitioner contended that the subsequent notice under Section 74 does not contain any allegation of fraud, wilful misstatement, or suppression of facts, which are the necessary ingredients to invoke Section 74. Therefore, the notice was without jurisdiction and liable to be set aside.
The Respondent contended that the material on record indicated suppression on the part of the Petitioner and that the substance of the notice, rather than the precise language, must be considered.
The Petitioner approached the Hon’ble High Court by way of writ petition challenging the said notice under Article 226 of the Constitution.
Issue:
Whether a show cause notice issued under Section 74 of the CGST Act is sustainable in law when it does not contain allegations of fraud, wilful misstatement, or suppression of facts as required under the said provision?
Held:
The Hon’ble Allahabad High Court in Writ Tax No. 2486 of 2025 held as under:
- Observed that, the impugned notice makes reference to the earlier Section 73 proceedings and states that the explanation submitted by the Petitioner could not be verified, for which further explanation was sought.
- Noted that, the notice does not contain any allegation that the Petitioner committed fraud, made a wilful misstatement, or suppressed material facts, which are essential jurisdictional prerequisites for invoking Section 74 of the CGST Act.
- Held that, in the absence of such allegations, the invocation of Section 74 was without jurisdiction.
- Further held that, since the necessary ingredients to invoke Section 74 were absent, the show cause notice could not be sustained in law.
- Accordingly, allowed the writ petition and quashed the show cause notice issued under Section 74 dated February 25, 2025 and clarified that, the Respondent is free to initiate appropriate proceedings afresh in accordance with law.
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