GST Show Cause Notice Quashed: Fraud Must Appear in the Notice, Not in a Counter Affidavit

A Division Bench of the Supreme Court set aside a Section 74 GST notice against M/s G.R. Infra Projects, holding that fraud allegations cannot be introduced through a counter affidavit.

The Supreme Court on 19 August 2026 quashed a Show Cause Notice issued against M/s G.R. Infra Projects Limited, Ratlam, for the assessment year 2018–19, finding it both time-barred under Section 73 of the Central Goods and Services Tax Act, 2017 and legally defective as a purported Section 74 notice. The Division Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran held that allegations of fraud, wilful misstatement, or suppression of facts must appear within the four corners of the notice itself and cannot be supplemented by a counter affidavit filed in court. The High Court of Madhya Pradesh at Indore had upheld the notice, and that order too was set aside.

How the Dispute Reached the Supreme Court

The respondent-department issued a Show Cause Notice dated 13 June 2025 to M/s G.R. Infra Projects for the assessment year 2018–19, purportedly under Section 74 of the CGST Act read with the Madhya Pradesh Goods and Services Tax Act, 2017. Section 74 applies where tax has been short-paid by reason of fraud, wilful misstatement, or suppression of facts, and carries a longer limitation window than Section 73, which governs cases involving no such element.

The assessee challenged the notice before the High Court of Madhya Pradesh at Indore by way of Writ Petition No. 40749 of 2025. The High Court, by order dated 29 October 2025, upheld the notice. The assessee then filed Special Leave Petition (C) No. 33594 of 2025 before the Supreme Court. Leave was granted and the matter was converted into Civil Appeal No. 11277 of 2026.

The Limitation Calculation Under Section 73

The Court worked through the limitation question methodically. Under Section 73(2) of the CGST Act, the proper officer must issue a show cause notice at least three months before the time limit in Section 73(10). That outer time limit is three years from the due date of the annual return for the relevant financial year.

For assessment year 2018–19, the annual return was ordinarily due on 31 December 2019 under Rule 80 of the CGST Rules. However, successive notifications issued under Section 44(1) extended that date, and for the year 2018–19 it ultimately stood at 31 December 2020. Accordingly, the three-year limitation for issuing a notice under Section 73 expired on 31 December 2023.

The COVID-19 pandemic introduced a further variable. In Writ Petition (C) No. 3 of 2020, registered as Re: Cognizance for Extension of Limitation, the Supreme Court extended limitation across statutes. By order dated 1 January 2022, the Suo Motu Writ Petition was disposed of with directions excluding the period 15 March 2020 to 28 February 2022 from limitation computation. The Court in the present case calculated that the excluded period falling within the three-year window for 2018–19 amounted to one year and two months. That period had to be added beyond 31 December 2023, pushing the outer deadline to 28 February 2025.

The SCN in question was issued on 13 June 2025 — more than three months after the extended deadline of 28 February 2025. The Court held that the notice was plainly hit by limitation under Section 73.

Whether Section 74 Could Save the Notice

The department's fallback position was that the notice was validly issued under Section 74, which has a longer limitation period because it targets fraudulent or suppressive conduct. The Government Advocate sought to take the Court through the counter affidavit, where the State had elaborated on its allegations of fraud and suppression of facts.

The Court declined to look at the counter affidavit. It restated the settled principle that when the validity of a notice or order is in question, the requirements for that validity must be contained in the notice or order itself. A counter affidavit filed in court cannot repair what is absent from the original document.

Turning to the notice itself, the Court found it entirely inadequate. It observed that the SCN contained nothing more than a bland invocation of the phrase “fraud or concealment of facts” without explaining how fraud was inferred or how concealment was detected. The Court also pointed to the use of “or” between the two expressions, which it read as indicating that even the assessing officer was unsure whether the case rested on fraud or on concealment.

The Court set out the legal standard clearly: what Section 74 requires is that the allegations which lead to the inference of fraud or concealment, as employed by the assessee, must emanate from the notice itself. It cannot be a mechanical reproduction of the statutory words “fraud, wilful misstatement or suppression of facts” without identifying the specific conduct or material that persuaded the officer to reach that conclusion.

The Procedural History of the Investigation

The Court also recorded the procedural background drawn from the record. Summons had been issued on 3 March 2022 covering the business years 2017–18 to 2020–21. The assessee initially sought time but did not produce required documents. An inspection was conducted at the assessee's premises and statements were recorded from the Accountant, the Authorised Signatory, and the Director on various dates. According to the State's counter affidavit, on 20 occasions out of hearings scheduled between 1 September 2022 and 7 February 2025, the assessee did not appear.

A draft notice-cum-investigation report was prepared on 3 March 2025 and an intimation under Section 142(1A) was issued on 29 April 2025. The assessee raised preliminary objections on 14 May 2025, specifically pointing out that the draft notice had not been served. The draft notice was served on 27 May 2025, and the SCN under Section 74 followed on 13 June 2025.

The Court noted this procedural history without treating the assessee's conduct during the investigation as a basis to validate the notice. The legal deficiency in the SCN — the absence of articulated fraud allegations within the notice itself — was dispositive.

The High Court's Error

The Court found that the High Court had erroneously upheld the SCN. No specific reasoning from the High Court's order is set out in the judgment, but the Supreme Court's conclusion was unequivocal: there was absolutely no reason to sustain the SCN. The High Court order and the SCN were both set aside.

Order

The Supreme Court allowed Civil Appeal No. 11277 of 2026. It set aside the order of the High Court of Madhya Pradesh at Indore dated 29 October 2025 in Writ Petition No. 40749 of 2025, as well as the Show Cause Notice dated 13 June 2025 issued for the assessment year 2018–19. The respondent-State was directed to desist from taking any further proceedings in pursuance of the SCN. All pending applications were disposed of.

Senior Advocate Mr. Kavin Gulati appeared for the appellant along with Mr. Jatin Harjai and others. The State was represented by Mr. S. Dwarakanath, Additional Solicitor General, and Mr. Rudraditya Khare, Deputy Advocate General, among others.