In Additional Commissioner Grade 2 & Anr. v. M/s Safecon Lifescience Private Limited, the Supreme Court has let stand a taxpayer-friendly Allahabad High Court ruling that Section 74 proceedings need proof of fraud — not just a supplier’s later-cancelled registration.
Case Snapshot
| Case Title | Additional Commissioner Grade 2 & Anr. v. M/s Safecon Lifescience Private Limited |
| Forum | Supreme Court of India |
| Citation | SLP (C) No. 23993 of 2026 |
| Order Date | 17 July 2026 |
| Bench | Justice Aravind Kumar & Justice Vipul M. Pancholi |
| Outcome | SLP dismissed at the admission stage; Allahabad High Court judgment left undisturbed |
| High Court Judgment Appealed | M/s Safecon Lifescience Pvt. Ltd. v. Additional Commissioner Grade 2 & Another, Writ Tax No. 389 of 2023, Allahabad High Court (9 September 2025) |
In one line: a bona fide purchaser cannot be denied Input Tax Credit under Section 74 of the GST law merely because the selling dealer’s registration was cancelled after the sale, or because of alleged irregularities further up the supply chain — absent a specific finding of fraud, wilful misstatement, or suppression of facts against the purchaser itself.
Background & Facts
Safecon Lifescience Private Limited, a wholesale trader and manufacturer of medicines and pharmaceutical products, purchased goods in April 2021 from M/s Unimax Pharma Chem, a Bhiwandi (Maharashtra)-based supplier, under a tax invoice dated 30 April 2021. At the time of the transaction, Unimax was a validly registered GST dealer and held a valid drug licence.
Adjudication order — 12 January 2022
The Deputy Commissioner, Commercial Tax, Agra, confirmed a GST demand against Safecon under Section 74 of the UPGST Act, alleging that the ITC claimed through GSTR-3B was fraudulent or otherwise ineligible.
First appeal dismissed — 20 December 2022
The Additional Commissioner, Grade-2 (Appeal)-II, State Tax, Agra, upheld the demand — on the ground that Safecon’s supplier had itself purchased goods from firms that had not deposited tax, and had allegedly claimed forged ITC further up the chain.
Writ petition before Allahabad High Court
Safecon challenged both orders, producing tax invoices, e-way bills, transport documents, banking-channel payment proof, and its GSTR-1, GSTR-2A and GSTR-3B returns to establish the genuineness of the transaction.
High Court allows the writ petition — 9 September 2025
Justice Piyush Agrawal quashed both the adjudication and appellate orders, holding that Section 74 proceedings were legally unsustainable on the facts.
Revenue’s SLP dismissed by Supreme Court — 17 July 2026
The State GST Department’s Special Leave Petition against the High Court’s ruling was dismissed at the admission stage, with the Supreme Court declining to interfere.
What the Department Alleged
The Revenue’s case rested on two grounds, neither of which pointed to any wrongdoing by Safecon itself: first, that the supplier’s GST registration had subsequently been cancelled; and second, that the supplier’s own upstream suppliers had allegedly not deposited tax, and had allegedly claimed forged ITC. On this basis, the department treated the ITC claimed by Safecon as ineligible and invoked Section 74 — the provision reserved for cases involving fraud, wilful misstatement, or suppression of facts with intent to evade tax.
A recurring pattern in GST enforcement
This fact pattern — denying ITC to a genuine buyer because of something that happened at the seller’s end, well after the transaction — is one of the most common triggers of GST litigation nationally. This case is a useful precedent specifically because the buyer’s own compliance was never in question.
The Allahabad High Court’s Ruling
The High Court found that neither the adjudicating authority nor the first appellate authority had recorded any finding that Safecon itself had committed fraud, wilfully misstated facts, or suppressed material information. In the Court’s assessment, the authorities had relied heavily on an intelligence report from a Central Excise and GST unit in Vadodara without independently verifying its contents or even sharing the report with Safecon — a procedural lapse the Court considered significant.
The Court also leaned on a CBIC circular dated 13 December 2023, which clarifies that Section 74 proceedings can be invoked only where the statutory ingredients of fraud, wilful misstatement, or suppression are actually made out — not as a general-purpose tool for denying ITC wherever something is amiss elsewhere in the supply chain. It further relied on the Supreme Court’s earlier ruling in Continental Foundation Joint Venture Holding v. Commissioner of Central Excise, which held that suppression or wilful misstatement necessarily requires an intention to evade tax, and cannot be inferred from mere omissions or errors. The Bench also referred to its own earlier decision in M/s Khurja Scrap Trading Company v. Additional Commissioner Grade 2 (Appeal), reiterating that Section 74 cannot be invoked merely because tax was not paid somewhere in the supply chain.
Having found that Safecon had produced documentary evidence of actual movement of goods and genuine payment through banking channels — evidence that the authorities had neither disproved nor rebutted at any stage — the Court held that invoking Section 74 could not be justified, and quashed both orders.
The Court’s underlying message: GST law is meant to facilitate ease of business, not to be used as an instrument of harassment against compliant taxpayers for defaults that occurred outside their control or knowledge.
The Supreme Court’s Order
The State GST Department carried the matter to the Supreme Court by way of Special Leave Petition. The Bench of Justice Aravind Kumar and Justice Vipul M. Pancholi condoned the delay in filing the petition but declined to go into the merits, dismissing the SLP at the admission stage itself. This leaves the Allahabad High Court’s judgment undisturbed and, as a dismissal at admission without detailed reasons, does not itself constitute binding Supreme Court precedent under Article 141 — but it does bring finality to this particular dispute and lends persuasive weight to the High Court’s reasoning for similarly placed taxpayers.
Why This Matters for Buyers & Practitioners
Grounds that do NOT justify Section 74
- Supplier’s GST registration cancelled after the transaction
- Irregularities or non-payment of tax by the supplier’s own upstream suppliers
- An intelligence report or alert not independently verified or shared with the taxpayer
- Mere non-payment of tax somewhere in the supply chain, without more
What Section 74 actually requires
- A specific finding of fraud against the taxpayer
- A specific finding of wilful misstatement by the taxpayer
- A specific finding of suppression of facts by the taxpayer, with intent to evade tax
- Genuine transaction evidence (invoices, e-way bills, banking payments, returns) properly considered and rebutted, not ignored
Practical Takeaways
Documentation is the first line of defence
Clients facing ITC denial for a counterparty’s default should be advised early to compile tax invoices, e-way bills, transport documents, and banking-channel payment proof — this evidentiary record was decisive in Safecon’s favour.
Demand disclosure of any intelligence report relied on
Where a demand is founded on an intelligence alert or report from another jurisdiction, insist on a copy being furnished — the High Court treated non-disclosure and lack of independent verification as a material flaw.
Invoke the December 2023 CBIC circular directly
Where Section 74 is invoked without a specific fraud/misstatement/suppression finding against your client, this circular is directly on point and should be pleaded explicitly in replies and appeals.
Watch for a wider ripple effect
Because this pattern is so common in GST demands nationally, expect this ruling to be cited widely in pending ITC-denial litigation before other High Courts and appellate authorities over the coming months.
Common Questions
Does this mean Section 74 can never be used when a supplier’s registration is cancelled?
No. It means cancellation of the supplier’s registration, by itself, is not sufficient. The department must still establish fraud, wilful misstatement, or suppression of facts specifically against the recipient claiming the ITC.
Is this Supreme Court order binding precedent on other courts?
A dismissal of an SLP at the admission stage, without a speaking order on the merits, does not by itself create binding precedent under Article 141 in the way a full judgment would. It does, however, bring finality to this dispute and leaves the Allahabad High Court’s detailed reasoning intact as persuasive authority.
What should a taxpayer do if they receive a similar Section 74 notice?
Promptly compile all documentary evidence of the genuineness of the transaction, specifically call for and examine any report or intelligence alert the department is relying on, and assess whether the show-cause notice actually records a specific finding of fraud, wilful misstatement, or suppression against your client — as opposed to imputing a counterparty’s default.