The Allahabad High Court, Lucknow Bench, has quashed a show cause notice issued under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017 and the corresponding State GST legislation, holding that the notice failed to contain the statutory ingredients necessary for invoking Section 74 proceedings. The Court found that the notice did not set out allegations relating to fraud, wilful misstatement or suppression of material facts with an intent to evade tax.
The Bench of Justice Shekhar B. Saraf and Justice Abhdesh Kumar Chaudhary has observed that the notice did not disclose allegations concerning fraud, wilful misstatement or suppression of material facts with an intent to evade tax. These elements are significant because Section 74 applies in circumstances where tax has not been paid, has been short-paid, has been erroneously refunded, or where input tax credit has been wrongly availed or utilised by reason of fraud, wilful misstatement or suppression of facts to evade tax.
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The petitioner approached the High Court under Article 226 of the Constitution challenging a show cause notice dated April 30, 2026. The notice had been issued under Section 74 of the SGST/CGST Act, 2017 in relation to the tax period 2020-21.
The principal relief sought by the petitioner was a writ of certiorari for quashing the notice on the ground that it suffered from patent lack of jurisdiction and was otherwise without jurisdiction.
The dispute before the Court, therefore, centred not merely on the tax liability itself, but on whether the statutory requirements for invoking the more stringent provisions of Section 74 had been satisfied in the notice issued by the tax authorities.
Upon examining the impugned show cause notice, the Division Bench found that it did not contain the ingredients contemplated under Section 74 of the GST legislation.
The Court specifically noted that merely invoking Section 74 in the heading or body of a notice would not be sufficient where the foundational statutory ingredients required for that provision have not been set out.
During the proceedings, counsel for the petitioner relied upon an earlier judgment of a Coordinate Bench of the Allahabad High Court in Writ Tax No. 1396 of 2024, HCL Infotech Ltd. v. Commissioner, Commercial Tax and another, reported as 2024:AHC:158274-DB.
The reliance on the earlier decision was significant because it concerned the requirement of properly setting out the statutory basis for proceedings under Section 74.
After examining the show cause notice in the present case, the Bench recorded its agreement with the submissions advanced on behalf of the petitioner. The Court concluded that the notice failed to spell out the ingredients required under Section 74 of the SGST/CGST Act, 2017.
Finding the notice legally deficient, the High Court quashed and set aside the impugned show cause notice.
However, the Court did not prevent the tax authorities from initiating proceedings afresh. It expressly granted liberty to the respondent authorities to issue a fresh show cause notice in accordance with law.
This means that the ruling does not amount to a final adjudication on whether any tax liability was actually payable by the petitioner for the relevant period. Rather, the Court’s intervention was directed at the legal validity and jurisdictional foundation of the particular Section 74 notice.
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