Section 74 SCN Quashed for Entity Registered Under Section 12AA — Gujarat HC Holds No Fraud, Suppression or Wilful Misstatement Where Assessee Claimed GST Exemption Based on HC's Own Charitable-Activity Ruling

The Gujarat High Court has quashed a show cause notice issued under Section 74 of the GST Act against a company registered under Section 12AA of the Income Tax Act which had claimed GST exemption as a charitable entity engaged in preservation of environment. Justices A.S. Supehia and Vaibhavi D. Nanavati, in Special Civil Application No. 17756 of 2023 (Naroda Enviro Projects Ltd. vs. Union of India, decided 02.09.2026), held that the invocation of Section 74 was wholly without basis as there was no fraud, wilful misstatement or suppression of facts.

The petitioner, a company running a common effluent treatment plant for industries in Naroda GIDC, was registered under Section 12AA of the Income Tax Act. The Gujarat High Court had itself in Tax Appeal No. 627 of 2015 (decided 29.07.2019) categorically held that the petitioner's activities fell within "preservation of environment" — a finding that went unchallenged, with the Supreme Court disposing of the revenue's civil appeal on grounds of low tax effect. After the GST regime came into force, the petitioner claimed exemption under Entry No. 1 of Notification No. 12/2017-Central Tax (Rate) which prescribes a "Nil" rate for services by entities registered under Section 12AA undertaking charitable activities including "preservation of environment."

The department issued a show cause notice under Section 74 alleging that the petitioner's services fell under Heading 9994 of Notification No. 11/2017 (sewage and waste collection, treatment and disposal) taxable at 9%, and that non-payment of GST amounting to Rs. 79.53 crore constituted wilful suppression. The Court rejected this, holding that Notification No. 12/2017 — which was issued after Notification No. 11/2017 and specifically deals with Section 12AA entities undertaking charitable activities — applies to the petitioner. The Court relied on the Supreme Court's rulings in Uniworth Textiles, Anand Nishikawa and Pushpam Pharmaceuticals to hold that mere non-payment of duty based on a bona fide belief about exemption does not amount to wilful suppression. The respondents could not ignore the earlier judgment of the same Court which had conclusively determined the nature of the petitioner's activities.

•  2026-juristway.com-1258-HC(Gujarat)-GST  |  High Court of Gujarat  |  R/Special Civil Application No. 17756 of 2023  |  02.09.2026