Tata Steel: Supreme Court rules that Section 74 CGST notices must state foundational facts of fraud or suppression to invoke extended limitation.
The Supreme Court has held that GST authorities cannot invoke the extended limitation under Section 74 merely by using expressions such as “fraud” or “suppression of facts” without setting out the factual basis for such allegations.
The Supreme Court has set aside a Goods and Services Tax (GST) show-cause notice issued to Tata Steel Limited, holding that a general allegation of fraud, wilful misstatement or suppression of facts cannot by itself justify invoking the extended limitation period under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act).
A Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran delivered the judgment on August 25 in M/s Tata Steel Limited v. Union of India, reported as 2026 LiveLaw (SC) 862.
The dispute concerned alleged irregularities relating to input tax credit (ITC) for three financial years—2018-19, 2019-20 and 2020-21. The Department had issued a show-cause notice dated June 13, 2025, invoking Section 74 of the CGST Act.
Section 74 Cannot Be Invoked Mechanically
Section 74 provides an extended limitation mechanism where tax has not been paid or has been short-paid, or input tax credit has been wrongly availed or utilised, by reason of fraud, wilful misstatement or suppression of facts.
Tata Steel challenged the notice, contending that it did not contain the necessary factual foundation to establish any such conduct. The company argued that Section 74 had been invoked primarily to take advantage of the extended limitation period after the ordinary limitation under Section 73 had expired.
The Supreme Court agreed with the substance of the challenge.
The Court emphasised that proceedings under Sections 73 and 74 can be initiated only upon the satisfaction of the proper officer. In a Section 74 proceeding, the officer must be satisfied not merely that there has been a tax mismatch or short payment, but that the mismatch or short payment occurred because of fraud, wilful misstatement or suppression of facts.
SCN Must Contain Foundational Facts
A significant aspect of the judgment is the Court’s finding that the foundational facts supporting the allegation of fraud or suppression must appear in the show-cause notice itself.
The Court observed that merely reproducing statutory expressions such as “fraud”, “wilful misstatement” or “suppression of facts” does not demonstrate the required application of mind.
According to the Supreme Court, these expressions cannot be mechanically inserted into a notice simply to bring a tax demand within the extended limitation period.
In the present case, the notice contained what the Court found to be a bland allegation that Tata Steel had availed ITC without documentary evidence and suppressed facts. However, it did not set out the foundational facts from which an inference of deliberate tax evasion or wrongful availment of excess ITC could be drawn.
Audit Objection Not Enough
The proceedings had originated from audit objections concerning alleged ITC discrepancies and short payment of tax.
The Supreme Court clarified that an audit objection may provide material for the Department to examine a matter, but the proper officer must independently apply his mind and arrive at the statutory satisfaction required for invoking Section 74.
The Court also took note of the fact that the Department had contested the audit objection before the Public Accounts Committee and had subsequently kept the matter in the “call book”. This, according to the Court, indicated that the necessary satisfaction regarding the alleged suppression had not been reached by the assessing authority.
‘Protective’ Section 74 Notice Not Permissible
The Supreme Court also rejected the attempt to use a Section 74 notice as a protective measure merely because the limitation period was approaching.
The Court held that the GST framework does not contemplate a protective Section 74 proceeding in which the factual foundation for fraud or suppression can be developed subsequently during adjudication.
The notice itself must disclose the basis on which the extended limitation is being invoked.
The Court consequently set aside the show-cause notice dated June 13, 2025, as well as the consequential Order-in-Original dated December 26, 2025.
Liberty Granted To Department
While quashing the proceedings, the Supreme Court did not completely prevent the Department from initiating fresh action.
The Court granted liberty to the Department to initiate an appropriate proceeding under Section 74, if permissible in law, provided the foundational facts supporting fraud, wilful misstatement or suppression are clearly set out in the notice itself.
Such proceedings would have to culminate within the applicable limitation period, with the Court noting February 28, 2027 as the relevant outer date in the present matter.
The judgment reinforces an important principle in GST adjudication: extended limitation cannot be secured merely through the use of serious statutory expressions. Authorities must disclose the factual foundation and demonstrate the connection between the alleged conduct and the tax shortfall.
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The judgment is likely to have wider significance for Section 74 CGST Act proceedings, particularly where tax authorities seek to rely on allegations of fraud or suppression to overcome the ordinary limitation period.
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