Bare Allegation of Suppression Cannot Sustain a Section 74 GST Notice, Supreme Court Holds

A Division Bench of the Supreme Court set aside a show cause notice against Tata Steel, holding that mechanically reciting “suppression” without foundational facts cannot invoke the extended five-year limitation under Section 74 of the CGST Act.

The Supreme Court has set aside a show cause notice and the consequential order-in-original issued against M/s Tata Steel Limited under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act), finding that the notice carried no foundational facts to support an allegation of fraud, willful misrepresentation, or suppression. Without such facts, the Department could not invoke the five-year extended limitation that Section 74 provides, as distinguished from the ordinary three-year period under Section 73. The Court, however, left the door open for the Department to initiate fresh proceedings under Section 74 with proper particulars, provided an order is passed before 28 February 2027. The judgment was authored by Justice K. Vinod Chandran and decided by a bench also comprising Justice J. B. Pardiwala on 25 August 2026.

How the Dispute Reached the Supreme Court

The dispute concerned three financial years—2018–2019, 2019–2020, and 2020–2021. The Department raised a show cause notice (SCN) dated 13 June 2025 purportedly arising from an audit objection by the office of the Comptroller and Auditor General of India. The objection related to a mismatch of input tax credit (ITC) and short payment of tax.

The proceedings leading to the SCN began with a communication dated 27 May 2024 regarding audit observations on ITC mismatch for the three years and short payment for 2019–2020. Tata Steel submitted replies, documents were sought on 27 June 2024, and further exchanges followed before the SCN was eventually issued on 13 June 2025.

Immediately after it was issued, the Additional Commissioner transferred the SCN to a “call book”—departmental parlance for keeping a matter in abeyance. The Department also intimated that it had contested the audit objection before the Public Accounts Committee. Despite this, a fresh notice was issued on 1 July 2025, reviving the earlier SCN and proposing a “protective demand” on the ground that the proceedings were time-bound under GST law.

Tata Steel challenged the SCN and the consequential order-in-original dated 26 December 2025. The matter arose out of SLP (C) No. 16859 of 2026, in which leave was granted by the Supreme Court.

The Limitation Arithmetic

Before addressing the Section 74 question, the Court worked through the applicable limitation dates with care, because the timeline was itself contested.

Under Section 73(10) of the CGST Act, the Proper Officer must issue an order within three years from the date of furnishing the annual return. Rule 80 of the Goods and Services Tax Rules, 2017 requires the annual return to be filed electronically on or before 31 December following the end of each financial year. However, given the teething problems accompanying the introduction of the GST electronic system from 1 July 2017, successive notifications under Section 44(1) extended the due dates substantially.

For 2018–2019, the annual return deadline was extended to 31 December 2020. For 2019–2020, the extended deadline was 31 March 2021. For 2020–2021, the deadline was 28 February 2022. The three-year limitation under Section 73 would therefore have expired on 31 December 2023, 31 March 2024, and 28 February 2025, respectively.

The pandemic added another layer. In In Re: Cognizance for Extension of Limitation, Suo Motu Writ Petition (C) No. 3 of 2020, this Court excluded the period from 15 March 2020 to 28 February 2022 from limitation across statutes, by order dated 1 January 2022. Applying that exclusion, portions of the three-year limitation window for 2018–2019 and 2019–2020 fell within the excluded period and had to be added back. The result was that the Section 73 limitation for all three years converged at 28 February 2025. For 2020–2021, the pandemic exclusion did not extend the period further because the annual return filing date itself was 28 February 2022, after the exclusion ended.

The SCN was dated 13 June 2025—past the 28 February 2025 deadline. The Section 73 limitation had already expired.

Whether Section 74 Could Rescue the Notice

The Department argued that even if Section 73 limitation had passed, the SCN was sustainable under Section 74, which provides an extended five-year window where there is an allegation of fraud, willful misrepresentation, or suppression of facts. The Additional Solicitor General relied on Explanation 2 to Section 74 to broaden the concept of suppression to include non-declaration of facts that an assessee is obliged to declare. The ASG also argued that proceedings had been commenced before the Section 73 limitation expired.

The Court rejected both arguments. On Explanation 2, it found the submission “equally fallacious” because even the ASG conceded that Explanation 2 stood omitted with effect from 1 November 2024—before the SCN was issued on 13 June 2025.

On the argument that proceedings commenced before the Section 73 deadline, the Court clarified the structure of the provision: Section 73(10) sets the deadline for issuing the order, and Section 73(2) requires a notice at least three months before that deadline. The commencement of audit correspondence does not amount to the commencement of adjudication proceedings that can anchor a Section 74 notice.

What the Assessing Officer Must Independently Satisfy Himself Of

The Court's central reasoning turned on the independent role of the Assessing Officer in initiating proceedings under Section 73 or Section 74. Audit objections, even those raised by the CAG, do not by themselves constitute grounds for issuing a notice. The Assessing Officer must reach his own satisfaction before a notice goes out.

For a notice under Section 74, that satisfaction must go beyond finding a mismatch of ITC or a short payment of tax. The officer must be satisfied that fraud, willful misrepresentation, or suppression caused the mismatch or short payment. The Court held that the foundational facts that led to such a conclusion must be evident from the notice itself. Merely employing the words “fraud” or “suppression” does not demonstrate an application of mind.

The Court observed that the Department's own conduct told against it. The SCN had been transferred to the call book, and the Department had taken the audit objections before the Public Accounts Committee. Both circumstances indicated that the Assessing Officer was himself not satisfied that any mismatch or short payment had occurred, let alone that suppression had caused it.

The SCN, beyond a bland statement that ITC had been availed “without documentary evidence and suppress the facts,” contained no particulars grounding the allegation. The Court held that this would not do. Words are not to be mechanically recited in a notice to take a case outside the ordinary limitation period.

On Protective Demands Under GST

The Court also addressed the Department's attempt to issue a “protective demand” through the fresh notice of 1 July 2025. It noted plainly that the concept of a protective assessment is alien to the GST regime, there being no statutory provision permitting such a measure under the CGST Act. The fresh notice reviving the earlier SCN on that basis was not sustainable.

Order

The Court set aside the SCN dated 13 June 2025 and the consequential order-in-original dated 26 December 2025. The civil appeal was allowed.

At the same time, the Court noted that the extended five-year period under Section 74 had not yet expired. That period runs from the date of furnishing of the annual returns, and the three-year limitation for all three financial years expired only on 28 February 2025, leaving a two-year extension window open until 28 February 2027. The Department is at liberty to initiate appropriate proceedings under Section 74 for the three financial years, provided the notice carries the foundational facts necessary to establish the Section 74 ingredients and an order is passed before 28 February 2027.

Any pending applications were directed to stand disposed of.