The Himachal Pradesh High Court has quashed a GST show-cause notice and the consequential order against a steel company, holding that proceedings under Section 74 of the Himachal Pradesh Goods and Services Tax Act must be supported by facts showing fraud, wilful misstatement or suppression of facts to evade tax.

The Division Bench of Justice Ajay Mohan Goel and Justice Yogesh Jaswal found that the notice issued to the assessee was cryptic and failed to establish the factual basis for invoking Section 74. The court nevertheless permitted the assessing authority to initiate fresh proceedings on the same subject matter through a fresh notice. 

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The company had challenged a show-cause notice dated September 12, 2024, and the subsequent order dated March 25, 2026.

After hearing the parties, the bench disposed of the petition through a consent order on September 21, 2026. Its examination centred on whether the notice satisfied the conditions necessary for proceedings under Section 74.

The judgment does not set out the amount of the disputed demand or explain the underlying transactions in detail. The court’s decision concerned the adequacy of the notice and the foundation for alleging fraud, wilful misstatement or suppression, rather than the correctness of the tax demand itself.

The bench explained that Section 74 covers cases where tax has not been paid, has been short paid or 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.

In such circumstances, the proper officer must issue a notice requiring the person concerned to explain why the specified tax, interest and penalty should not be paid.

The court emphasised that the existence of a tax discrepancy alone does not establish the statutory foundation for invoking Section 74. The alleged non-payment, short payment or other default must be attributable to one of the circumstances specified in the provision.

“Thus, the pre-condition for the issuance of a notice under Section 74” is that the tax default must arise from fraud, wilful misstatement or suppression of facts to evade tax, the bench observed. 

The High Court relied on the Supreme Court’s decision in M/s Tata Steel Limited v. Union of India, identified in the judgment as SLP (C) No. 16859 of 2026.

As recorded by the High Court, the Supreme Court had stressed the need for the assessing officer’s satisfaction and the disclosure of foundational facts supporting an inference of fraud, wilful misrepresentation or suppression.

The bench further noted that the language of Section 74 cannot be mechanically reproduced in a notice to enable recovery beyond the normal limitation period. The notice itself must reveal the facts on which the officer has drawn the relevant inference.

The requirement therefore concerns the substance of the allegations. A reference to the statutory provision, without explaining the conduct said to attract it, does not meet the standard described in the judgment.

Applying these principles, the bench held that the September 12, 2024 notice did not fulfil the required criteria.

The court described it as “more or less a cryptic one” and found that it did not establish that the company’s alleged conduct involved fraud, wilful misrepresentation or suppression of facts.

Consequently, the court quashed both the show-cause notice and the consequential order dated March 25, 2026. It expressly refrained from making further observations on the merits of the dispute. 

The relief did not finally resolve the company’s substantive tax liability. The court reserved liberty for the assessing authority to proceed afresh on the same subject matter, if so advised, by issuing a fresh show-cause notice under Section 74 of the HPGST Act.

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