Movement of goods cannot be doubted due to absence of toll receipts
- Parul Aggarwal
- Mar 16
- 8 min read
The Allahabad High Court, in M/S Raghuvansh Agro Farms Ltd. v. State of U.P. & Others, delivered a landmark judgment under Article 226 of the Constitution of India, quashing assessment and appellate orders issued against the petitioner under Section 74 of the UPGST/CGST Act, 2017. The Court categorically held that proceedings under Section 74, which are categorically reserved for cases involving fraud, wilful misstatement or suppression of facts with intent to evade tax, were wrongly invoked without proper jurisdictional basis or cogent evidence. The judgment addresses multiple critical dimensions of GST law, namely the preconditions for invoking enhanced penalty proceedings, the inadmissibility of presumption-based findings on circular trading, the lack of any statutory basis for demanding toll plaza receipts, the effect of dropped supplier proceedings on recipient liability, and the jurisdictional overreach by State GST authorities over Central GST taxpayers. This article critically analyses the facts, legal issues, the Court's reasoning, and the far-reaching implications of this ruling.
Background and Facts of the Case:
M/S Raghuvansh Agro Farms Ltd. is a private limited company engaged in the trading of agricultural commodities, including areca nuts. The company came under the scrutiny of the GST authorities when its business premises were surveyed in January 2019. Following the survey, certain discrepancies were alleged by the department, which set into motion a prolonged chain of proceedings.
In April 2021, the department issued a Show Cause Notice under Section 74 of the Uttar Pradesh Goods and Services Tax (UPGST) Act, 2017. The notice was followed by multiple reminders and further notices. The department's core allegations were threefold, citing that the petitioner was engaged in circular trading, that there was no actual physical movement of goods and that Input Tax Credit (ITC) had been wrongfully availed.
The petitioner submitted comprehensive replies accompanied by extensive documentary evidence, including:
Valid tax invoices
E-way bills
Transport bilties (lorry receipts)
Bank statements evidencing payment through banking channels
Detailed ledger accounts
GSTR-1, GSTR-2A, and GSTR-3B returns showing matched entries
Despite this comprehensive documentation, the Assessing Authority passed an assessment order without granting the petitioner an effective personal hearing. The first appellate authority dismissed the petitioner's appeal mechanically. Aggrieved, the petitioner invoked the extraordinary jurisdiction of the Allahabad High Court under Article 226 of the Constitution of India.
Maintainability of Writ under Article 226
Article 226 of the Constitution of India confers upon the High Courts the power to issue writs, including writs of certiorari, mandamus, and prohibition, for the enforcement of fundamental rights and for any other purpose. While the GST framework provides for statutory appellate remedies, the petitioner approached the High Court directly given the multiple jurisdictional and legal infirmities in the proceedings against it.
It is well-settled law that a writ petition under Article 226 is maintainable even when statutory remedies are available, particularly where:
There is a violation of the principles of natural justice;
There is an excess or want of jurisdiction; or
The impugned order is a nullity in the eyes of law.
In the present case, all three grounds were substantially present, making the invocation of Article 226 appropriate.
Core Legal Issues and the Court's Analysis
Wrongful Invocation of Section 74 — Absence of Jurisdictional Preconditions
Section 74 of the CGST/UPGST Act is a special provision that attracts a higher penalty regime compared to Section 73. Its invocation is jurisdictionally conditioned on the existence of one or more of the following, namely fraud, wilful misstatement or suppression of facts with an intent to evade tax. These are not merely procedural requirements — they are substantive preconditions that must be alleged and established before Section 74 can be put into operation.
The Court found that the Show Cause Notice issued to the petitioner failed to specify which statement was wilfully false, what constituted fraud or what facts had been suppressed. The assessment order similarly reproduced bald allegations without any analytical finding on these foundational elements. The Court categorically held that the absence of these jurisdictional ingredients renders Section 74 proceedings void ab initio. This reinforces a critical constitutional principle: a taxing authority cannot invoke enhanced penal provisions merely on suspicion — the invocation must be legally grounded.
Circular Trading Allegations Require Positive Evidence, Not Conjecture
The department alleged, without conducting a proper investigation that the petitioner's transactions constituted circular trading and that goods were never physically moved. Such allegations, if established, could indeed negate ITC claims and attract Section 74 proceedings.
However, the Court found that the petitioner had discharged the initial burden of proof by producing a complete set of statutory and commercial documents. Once such documentation is in place and verifiable on the GSTN portal, the burden shifts to the revenue to disprove genuineness through cogent and admissible evidence. Mere suspicion, however strong it may be, cannot substitute for legal proof. The Court held that allegations of circular trading must be backed by an actual investigation and evidentiary material — not assumptions or conjectures drawn from the nature of the industry or the identity of the parties.
No Statutory Requirement for Toll Plaza Receipts or Weighbridge Slips
One of the most practically significant findings of the Court concerns the department's insistence on toll plaza receipts and weighbridge slips as proof of movement of goods. The Court undertook a careful examination of the CGST Act, UPGST Act and the Rules framed thereunder and concluded that neither the statute nor the rules prescribe toll plaza receipts or weighbridge slips as mandatory documents. Demanding such documents as a condition for accepting the genuineness of transactions is, in the Court's words, 'patently perverse and without any basis in law.' Where the taxpayer has produced e-way bills, transport bilties, and evidence of payment through banking channels, the physical movement of goods cannot be doubted merely on account of the absence of toll receipts.
Effect of Dropped Proceedings Against Supplier
The Court considered a particularly consequential fact: that proceedings against one of the petitioner's suppliers, M/s Sibri Traders, had been dropped by the CGST Anti-Evasion authorities. The Court held that once the department itself drops proceedings against the supplier on identical allegations, it cannot consistently proceed against the recipient-buyer on the same grounds. This finding reinforces the principle of departmental consistency and fairness. It also underscores that ITC cannot be denied retrospectively on the basis of departmental inconsistencies or contradictory actions by different wings of the tax administration.
Jurisdictional Overreach by State GST Authorities
A crucial and independently sufficient ground for quashing the proceedings was the jurisdictional incapacity of the State GST authorities. The petitioner's registration and compliance obligations fell under the Central GST (CGST) regime. Proceedings, however, were initiated by State GST officers. The Court found that no cross-empowerment notification had been issued by the Central Government authorising State officers to exercise jurisdiction over Central taxpayers in this case. The State's failure to justify its jurisdictional basis was fatal to the proceedings. The Court held that the entire proceedings were conducted without authority of law — a finding that, standing alone, was sufficient to vitiate the orders passed.
Distinguishing the Ecom Gill Coffee Judgment
The State relied on the Supreme Court's decision in State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd. to justify the denial of ITC. The Court carefully distinguished this precedent. In Ecom Gill Coffee, the physical movement of goods itself was disproved by positive evidence. In the present case, by contrast, the petitioner had produced e-way bills, transport documents, banking proofs and matched GST returns establishing actual movement. The Court reiterated the settled principle that judicial precedents cannot be applied mechanically — factual parity is essential before a ratio decidendi is extended to a new set of facts.
The Verdict
The Allahabad High Court allowed the writ petition in its entirety. The Court's final orders included:
Quashing of the assessment order passed by the Assessing Authority
Quashing of the appellate order dismissing the petitioner's first appeal
A declaration that the Section 74 GST proceedings were legally unsustainable
Directions for the refund of amounts deposited by the petitioner under protest
Endorsement of the CBIC Circular dated 13.12.2023 as binding on the revenue authorities
Implications for Taxpayers and GST Practitioners
The Raghuvansh Agro Farms judgment constitutes a significant development in GST jurisprudence. Its implications extend well beyond the facts of the case and affect the broader ecosystem of GST compliance and enforcement.
Reinforcing the Threshold for Section 74
Section 74 is not a default provision available whenever the department has a tax demand. It is an exceptional instrument reserved for proven instances of fraud, wilful misstatement and/ or suppression with evasive intent. Tax authorities must clearly allege and demonstrate these elements before invoking the provision. Show Cause Notices that reproduce formulaic allegations without specifying the nature of fraud or misstatement are legally defective and exposed to challenge under Article 226.
Protection of Documented ITC Claims
Taxpayers who maintain proper records — invoices, e-way bills, transport documents, bank statements, and matched GST returns, are well-protected under this judgment. The Court's ruling that the initial burden of proof is discharged upon production of statutory documents, after which the burden shifts to the revenue, provides a robust framework for defending ITC claims.
Clarity on Extra-Statutory Demands
The ruling sends a clear signal that revenue authorities cannot impose compliance requirements beyond those prescribed by the statute and rules. Demands for toll plaza receipts, weighbridge slips, or other documents not contemplated by the GST law are impermissible and can be challenged.
Jurisdictional Discipline Between CGST and SGST
The dual GST structure — with both Central and State authorities having separate jurisdictional domains, requires disciplined adherence to the rules governing cross-empowerment. Taxpayers who fall under CGST jurisdiction cannot be subjected to proceedings by State GST officers absent a lawful cross-empowerment notification. This is a standalone ground that can nullify all proceedings.
Our Analysis
The judgment is consistent with a growing line of authority from the Allahabad High Court, including M/s Vijay Trading Company and M/s PP Polyplast Private Limited, which have been affirmed by the Supreme Court. Together, these decisions reflect the judiciary's determination to ensure that the powerful investigatory and penal machinery of the GST regime is exercised within constitutional and statutory limits.
At the same time, the judgment raises important questions for tax administrators. The GST ecosystem has, since its inception, grappled with the challenge of fake ITC — a problem that the legislature specifically sought to address through the stringent provisions of Section 74. Courts must walk a fine line between preventing abuse of process by the revenue and not inadvertently creating safe harbours for genuine tax evaders. The present judgment carefully navigates this tension by requiring the revenue to substantiate its allegations with actual evidence rather than abandoning the enforcement power altogether.
The Court's reliance on Article 226 jurisdiction rather than leaving the petitioner to statutory remedies also merits attention. It signals judicial recognition that in cases involving fundamental jurisdictional defects, the High Court will not insist on exhaustion of remedies where doing so would cause manifest injustice.
Conclusion and Way Forward
M/S Raghuvansh Agro Farms Ltd. v. State of U.P. & Others is a landmark in the evolving jurisprudence of GST law in India. It decisively settles the threshold requirements for Section 74 proceedings, affirms the primacy of documentary evidence over departmental conjecture, eliminates extra-statutory compliance demands and draws firm lines on jurisdictional boundaries between CGST and State GST authorities.
For taxpayers, tax professionals and litigators, this judgment is an invaluable reference point. It demonstrates that the writ jurisdiction under Article 226 remains a potent constitutional safeguard against unlawful tax proceedings and that courts will intervene decisively where the exercise of statutory power exceeds its lawful boundaries.
The ruling is a strong affirmation of the rule of law in GST administration. It reinforces the ratio that penal and investigatory provisions exist to serve justice, not as instruments of arbitrary harassment.
(This article is intended for legal and academic commentary purposes only and does not constitute legal advice. Neither the author, nor the firm or Company, its employees and/ or its affiliates, accept any liability for any loss or damage on account of use of any information/ analysis cited in this Article, nor for any action taken in reliance thereon.)
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