The Supreme Court has set aside a GST show cause notice issued to Tata Steel Limited for the financial years 2018-19, 2019-20 and 2020-21, holding that the extended five-year limitation under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) cannot be invoked merely by mechanically alleging fraud, wilful misrepresentation or suppression of facts.

The bench of Justice J. B. Pardiwala and Justice K. Vinod Chandra found that the notice did not disclose foundational facts demonstrating fraud, wilful misrepresentation or suppression and therefore could not sustain proceedings under Section 74.

The controversy arose from audit objections concerning Tata Steel’s GST compliance for FYs 2018-19 to 2020-21. The Department issued proceedings purportedly under Section 74 of the CGST Act, which permits recovery under an extended limitation period where tax has not been paid or has been short-paid, or ITC has been wrongly availed or utilised, by reason of fraud, wilful misstatement or suppression of facts.

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Tata Steel challenged the invocation of Section 74, contending that the show cause notice did not contain any specific allegation or factual foundation establishing fraud, wilful misstatement or suppression. According to the assessee, absent such circumstances, the proceedings ought to have been governed by Section 73, which provides the normal limitation framework.

The assessee also pointed out that the Department itself had kept the proceedings in the “call book”, meaning that the matter had effectively been kept in abeyance, and that the subsequent revival was undertaken when the limitation period was nearing expiry. A fresh notice was thereafter issued proposing a protective demand, although there is no statutory mechanism for a “protective assessment” under the GST legislation.

The Supreme Court first examined the limitation applicable under Section 73 of the CGST Act.

Section 73 applies where there is no allegation of fraud, wilful misrepresentation or suppression of facts. Under Section 73(10), the order is required to be issued within three years from the date of furnishing of the relevant annual return. Section 73(2), meanwhile, requires the notice to be issued at least three months before the limitation period for passing the order expires.

The Court noted that the statutory deadlines for furnishing annual returns for the relevant financial years had subsequently been extended through notifications. Consequently, the limitation periods were also correspondingly shifted.

For FY 2018-19, the annual return deadline ultimately stood extended to December 31, 2020. For FY 2019-20 and FY 2020-21, the relevant deadlines were March 31, 2021 and February 28, 2022 respectively. On that basis, the ordinary three-year limitation would have expired on December 31, 2023, March 31, 2024 and February 28, 2025 respectively.

The Supreme Court also took into account its orders in In Re: Cognizance for Extension of Limitation, whereby the period from March 15, 2020 to February 28, 2022 was excluded for limitation purposes owing to the COVID-19 pandemic.

Applying the exclusion, the Court held that the limitation for FY 2018-19 and FY 2019-20 was further extended. Ultimately, for all three financial years involved in the dispute, the relevant three-year limitation period was treated as expiring on February 28, 2025.

The show cause notice dated June 13, 2025 was therefore issued after the expiry of the extended period applicable under the normal Section 73 framework. This made the validity of the Department’s reliance on the extended five-year period under Section 74 the central issue before the Supreme Court.

The Supreme Court emphasized that the extended limitation available under Section 74 is not automatically available merely because the Department describes an alleged tax discrepancy using words such as “suppression” or “wilful misrepresentation”.

The Court held that proceedings under Sections 73 or 74 can be initiated only upon the satisfaction of the Proper Officer. Where Section 74 is invoked, the officer must be satisfied not merely that there was an ITC mismatch or short payment of tax, but also that such mismatch or short payment occurred because of fraud, wilful misrepresentation or suppression of facts.

This requirement, according to the Court, assumes particular significance because invocation of Section 74 exposes the assessee to an extended limitation period. The exceptional limitation provision cannot therefore be invoked as a matter of routine.

A significant aspect of the judgment concerns the role of audit objections in initiating GST proceedings.

The Department relied upon audit observations concerning ITC mismatch and alleged short payment of tax. However, the Supreme Court noted that the Department had itself taken the audit objection before the Public Accounts Committee. The Court considered this circumstance significant because it demonstrated that there was no clear satisfaction at the level of the Assessing Officer regarding the alleged mismatch or short payment, much less regarding suppression of facts.

The Court made it clear that an audit objection cannot, by itself, replace the statutory satisfaction required from the Proper Officer before initiating proceedings under Section 73 or Section 74.

Thus, even where an audit identifies a potential tax discrepancy, the jurisdictional officer must independently apply his mind and determine whether the statutory conditions for invoking the relevant provision are satisfied.

The Supreme Court delivered a strong observation on the manner in which allegations of fraud, wilful misrepresentation and suppression must be incorporated in a Section 74 notice.

The Court held that the foundational facts leading to an inference of fraud, wilful misrepresentation or suppression must be evident from the show cause notice itself. Merely reproducing statutory terminology does not establish the necessary application of mind.

According to the Court, the extended limitation provision is not intended to be triggered through “lip service” to the statutory requirements. The notice must disclose the factual basis from which the alleged fraud, wilful misrepresentation or suppression can reasonably be inferred.

In other words, simply stating that an assessee “suppressed facts” or “wilfully misrepresented” information will not, by itself, transform an otherwise time-barred proceeding under Section 73 into a valid proceeding under Section 74.

The Court found that the show cause notice contained only a bland allegation concerning availment of ITC without documentary evidence and alleged suppression of facts.

The Court held that the notice did not contain foundational facts demonstrating that Tata Steel had deliberately employed a device to evade tax or avail excess ITC. The allegation of suppression was therefore found insufficient to justify invocation of the extended limitation period.

The Court consequently held that the show cause notice could not be sustained.

Since the foundation of the proceedings was the defective Section 74 show cause notice, the Supreme Court also set aside the consequential Order-in-Original dated December 26, 2025.

The Court specifically observed that the proceedings were vulnerable because the Department had attempted to invoke the extended limitation merely through a general allegation of suppression without setting out the factual circumstances necessary to support such an allegation.

The Supreme Court did not completely foreclose the Department from taking action under Section 74.

The Court noted that an extended period of two years remained available in respect of the relevant financial years, since the three-year limitation had expired on February 28, 2025. It therefore granted liberty to the Department, if it considered it appropriate, to initiate a fresh proceeding under Section 74.

However, any such fresh proceeding must satisfy the legal requirements laid down by the Court. The foundational facts supporting the allegations of fraud, wilful misrepresentation or suppression must emerge from the notice itself, and the order must be passed before February 28, 2027.

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