The Madras High Court has held that show cause notices issued under Section 74 of the GST Acts must clearly disclose the jurisdictional facts and reasons for invoking the extended period of limitation, including allegations of fraud, wilful misstatement, or suppression of facts to evade tax.
The Bench of Justice C. Saravanan in a batch of writ petitions examined the validity of several GST notices and assessment orders issued under Section 74 of the CGST and TNGST Acts for tax periods ranging from 2017 to 2025.
Key Issue Before the Court
The principal question before the court was whether the “proper officer” had validly invoked Section 74, which permits a longer limitation period where tax has allegedly been short-paid due to fraud, wilful misstatement, or suppression of facts.
The petitioners argued that many of the notices merely alleged suppression in a mechanical manner without disclosing the foundational facts necessary to justify the extended limitation.
Court Emphasises ‘Where It Appears to the Proper Officer’
The bench observed that the phrase “where it appears to the proper officer” in Section 74 is not an empty formality.
The court noted that the provision requires application of mind and the existence of objective material before a notice invoking fraud or suppression can be issued.
The bench further observed that subjective satisfaction of the proper officer must be based on objective material and is open to judicial review. Mere reproduction of statutory language without disclosing the basis for the allegation would not satisfy the jurisdictional requirement.
No Blanket Approval for Extended Limitation
The court further noted that specific averments challenging the bona fides of the assessee must be made in the show cause notice. Vague allegations, the judgment states, deprive the taxpayer of a meaningful opportunity to respond.
Relying on several Supreme Court decisions, including H.M.M. Ltd., Pushpam Pharmaceuticals, Cosmic Dye Chemicals, and Amarendra Kumar Pandey, the court reiterated that suppression must involve a deliberate act with intent to evade tax, and cannot be inferred merely from a difference of opinion or interpretation of law.
Common Notices for Multiple Years
On the separate issue of whether a single show cause notice can cover multiple financial years, Justice Saravanan expressed agreement with the recent Karnataka High Court Division Bench ruling in Chimney Hills Education Society, which held that Sections 73 and 74 do not prohibit common notices for multiple tax periods.
However, the Madras High Court noted that the issue is still pending before larger benches and refrained from giving a final conclusive ruling on that aspect.
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