The Supreme Court has granted interim relief to a taxpayer in a significant Goods and Services Tax (GST) dispute concerning the validity of assessment proceedings under Section 74 of the CGST/Telangana GST Act, staying multiple assessment orders while issuing notice in a writ petition and a connected special leave petition. The interim order comes after the Telangana High Court refused to interfere with the assessment proceedings and directed the assessee to pursue the statutory appellate remedy. 

A Bench comprising Justice Sanjay Kumar and Justice Sanjeev Sachdeva issued notice in the writ petition and directed that the Orders-in-Original dated April 22, 2026 relating to the financial years 2021-22, 2022-23 and 2023-24 shall remain stayed until the next date of hearing.

The bench stayed the operation of the Telangana High Court’s order along with the corresponding assessment order under challenge. The matters have been listed for further hearing on September 28, 2026. 

Buy Now: GST Judgements E-Compilation – June 2026

Background of the Dispute

The litigation arises from a prolonged series of GST proceedings initiated following searches conducted by the State Tax Department and subsequent allegations involving suppression of taxable transactions and wrongful availment of input tax credit.

Earlier rounds of litigation before the Telangana High Court had resulted in the original show cause notices and assessment orders being set aside, with liberty granted to the tax authorities to issue fresh notices after supplying relevant documents to the taxpayer. The High Court had also observed that if fresh notices were issued within thirty days of its earlier order, they would not be treated as barred by limitation. 

Subsequently, disputes arose over several allegedly missing files seized during investigation. The taxpayer repeatedly approached the High Court contending that without access to those records it was impossible to effectively defend the proceedings. The State Tax Department, however, informed the Court that it would not rely upon the missing files and would instead proceed on the basis of the remaining available records. 

Taxpayer’s Challenge

Before the Telangana High Court, the taxpayer challenged both the show cause notice dated October 18, 2025 and the assessment order dated March 28, 2026 relating to FY 2019-20.

Among the principal grounds urged were:

• The show cause notice was allegedly issued in violation of Section 74(2), which requires issuance at least six months before the deadline for passing the adjudication order.
• The notice was also claimed to have been issued beyond the thirty-day period contemplated by the High Court’s earlier judgment.
• The adjudicating authority allegedly violated Sections 75(4) and 75(5) by failing to provide an effective opportunity of hearing.
• The assessment allegedly confirmed overlapping and duplicative tax demands.
• The taxpayer argued that several relevant submissions and objections had been rejected without proper consideration and that the proceedings violated principles of natural justice. 

State Tax Department’s Stand

The State defended the assessment proceedings by pointing out that the Supreme Court had already dealt with substantially similar grievances in earlier proceedings and had directed the taxpayer to pursue statutory appeals under Section 107 of the GST Act.

The Department submitted that:

• Numerous opportunities had been granted for filing replies.
• Several personal hearings had been conducted.
• The missing files were not relied upon during adjudication.
• The taxpayer had never earlier raised the limitation objection under Section 74(2).
• The Supreme Court had already permitted the taxpayer to raise all factual and legal objections before the appellate authority. 

Telangana High Court’s Findings

The Telangana High Court undertook an extensive review of the litigation history and ultimately declined to exercise its writ jurisdiction.

One of the central legal issues before the Court was whether the requirement under Section 74(2) that a show cause notice be issued at least six months before the deadline for passing the adjudication order is mandatory.

The High Court held that the provision does not appear to be mandatory merely because it uses the word “shall.” According to the Court, the statute does not prescribe any consequence for non-compliance, making it necessary to examine whether the taxpayer had actually suffered prejudice.

The Bench observed that the taxpayer had been afforded multiple opportunities to submit replies, participate in hearings and produce its case before the adjudicating authority. In those circumstances, it concluded that no real prejudice had been demonstrated merely because the notice had been issued within a period shorter than six months before the assessment order. 

The Court also noted that the assessment order had been passed well within the statutory limitation period ending on March 31, 2026.

Effect of Earlier Supreme Court Orders

An important aspect of the High Court’s reasoning was the earlier order of the Supreme Court dated May 13, 2026.

In those proceedings, the Supreme Court had observed that the taxpayer’s appropriate remedy lay in filing statutory appeals under Section 107 of the GST Act after making a reduced pre-deposit of 5% of the principal tax demand. The Court had further permitted the taxpayer to raise all contentions before the appellate authority, including the alleged prejudice arising from the disappearance of 14 seized files. 

Although a subsequent modification order dated May 29, 2026 clarified that the taxpayer could either pursue statutory appeals or avail any other remedy available in law, the High Court held that this clarification did not dilute the Supreme Court’s earlier direction relegating the taxpayer to the appellate remedy. 

Accordingly, the Telangana High Court dismissed the writ petition while leaving it open to the taxpayer to pursue the statutory appellate mechanism. 

Supreme Court Grants Interim Protection

The matter has now reached the Supreme Court once again.

Taking note of the challenge, the Supreme Court has issued notice in both proceedings and granted interim protection by staying:

• the Orders-in-Original dated April 22, 2026 concerning FY 2021-22, FY 2022-23 and FY 2023-24; and
• the operation of the Telangana High Court’s June 25, 2026 judgment along with the corresponding assessment order challenged in the connected Special Leave Petition.

The interim stay will continue until the next hearing scheduled for September 28, 2026.

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