GST Section 74 notice cannot rely on bare allegations of suppression, Supreme Court rules; Tata Steel demand set aside

Tata Steel challenged a Show Cause Notice (“SCN”) issued under Section 74 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) concerning alleged input tax credit (“ITC”) mismatches for financial years 2018–2019 to 2020–2021 and alleged short payment of tax for 2019–2020.

Tata Steel contended that the SCN did not allege or disclose foundational facts constituting fraud, wilful misstatement, or suppression of facts, which are prerequisites for invoking the extended limitation under Section 74.

The Department initially communicated with Tata Steel regarding the audit objections, sought supporting documents, and subsequently issued the SCN dated 13 June 2025.

The SCN was thereafter placed in the departmental “call book”, indicating that it had been kept in abeyance because the audit objection was being contested before the Public Accounts Committee.

A further notice dated 1 July 2025 purported to revive the earlier notice and proposed a protective demand, although no statutory mechanism for protective assessment existed under the CGST Act.

The Court examined the applicable limitation periods under Sections 73 and 74, including extensions granted for filing annual returns and the exclusion of the COVID-19 period pursuant to the Supreme Court’s orders in In Re: Cognizance for Extension of Limitation.

Whether the SCN issued on 13 June 2025 was within the applicable limitation period under Section 73 of the CGST Act, after accounting for statutory extensions and the COVID-19 exclusion period?

Whether the Department could invoke the extended limitation under Section 74 in the absence of specific foundational facts alleging fraud, wilful misstatement, or suppression of facts?

Whether the Proper Officer had independently applied his mind and recorded the requisite satisfaction before initiating proceedings under Section 74, notwithstanding the underlying audit objection?

Whether the Department could issue or revive a protective demand under the CGST Act merely because the limitation period was nearing expiry?

The Court applied Sections 73 and 74 of the CGST Act: Section 73 governs recovery where fraud, wilful misstatement, or suppression of facts is not alleged, while Section 74 permits the extended limitation period only where such conduct is specifically established.

Section 73(10) prescribes the period for passing the order, and Section 73(2) requires notice to be issued at least three months before that period expires.

Section 44 and Rule 80 of the CGST Rules govern the filing of annual returns and consequently determine the commencement of the limitation period.

The Court also applied the extensions granted under Section 44(1) and the exclusion of the period from 15 March 2020 to 28 February 2022 ordered in In Re: Cognizance for Extension of Limitation.

The Court held that invocation of Section 74 requires the Proper Officer’s independent satisfaction not merely that tax was short-paid or ITC was wrongly availed, but that such result was caused by fraud, wilful misstatement, or suppression; the foundational facts supporting that conclusion must appear in the SCN itself.

Mere repetition of statutory expressions is insufficient.

The Court calculated the limitation under Section 73 by reference to the extended dates for filing annual returns: 31 December 2020 for 2018–2019, 31 March 2021 for 2019–2020, and 28 February 2022 for 2020–2021.

After applying the COVID-19 exclusion, the limitation for the first two years was extended to 28 February 2025, while the limitation for 2020–2021 also expired on that date.

The SCN dated 13 June 2025 was therefore beyond the Section 73 limitation period.

The Department sought to sustain the proceedings under Section 74, but the Court found that the SCN merely used general expressions such as “suppression of facts” and alleged availment of ITC without documentary evidence.

It did not identify the factual circumstances showing a deliberate device, fraudulent conduct, wilful misstatement, or intentional suppression resulting in the alleged ITC mismatch or tax shortfall.

The Department’s decision to place the matter in the call book and its contest of the audit objection before the Public Accounts Committee further indicated that the Proper Officer had not independently satisfied himself even as to the underlying mismatch or short payment, much less the additional ingredients required under Section 74.

The Court also rejected the argument based on Explanation 2 to Section 74, noting that the Explanation had been omitted with effect from 1 November 2024.

Finally, the Court held that a protective assessment or demand was not statutorily permissible under the GST framework.

The Court also found that the Proper Officer had not demonstrated the requisite independent satisfaction and that the purported protective demand was impermissible.

Accordingly, the SCN and the consequential Order-in-Original dated 26 December 2025 were set aside.

The Department was granted liberty to initiate an appropriate proceeding under Section 74, provided that the notice contained the necessary foundational facts and the order was passed before 28 February 2027.

The appeal was consequently allowed, and pending applications were disposed of.