Introduction
The Hon’ble Supreme Court has recently clarified that Section 74 of the CGST Act cannot be invoked merely by reproducing the expressions “fraud”, “wilful misstatement” or “suppression of facts”. Where the Department seeks to invoke the extended period of limitation, the show-cause notice (“SCN”) must disclose the material facts and circumstances which form the basis for such an allegation.
In M/s G.R. Infra Projects Limited, Ratlam v. State of Madhya Pradesh & Ors., Civil Appeal No. 11277 of 2026, the Supreme Court set aside the Section 74 SCN, holding that a mere “bland statement” alleging fraud or concealment, without setting out the underlying facts, cannot justify invocation of the extended limitation. The principle was reiterated in M/s Tata Steel Limited v. Union of India, Civil Appeal arising out of SLP (C) No. 16859 of 2026, decided on 25 August 2026, where the Court held that mechanically reproducing the statutory expressions does not, by itself, establish the basis for proceeding under Section 74. The proper officer must arrive at the requisite conclusion on the basis of material available on record.
These decisions are particularly important where the ordinary limitation under Section 73 has expired or is nearing expiry. The Department cannot overcome limitation merely by invoking Section 74 in general terms. The SCN must itself disclose the specific facts and material forming the basis of the allegation, failing which the invocation of the extended period becomes legally vulnerable.
Facts of the case
In G.R. Infra Projects, the Department issued an SCN dated 13 June 2025 for FY 2018–19, invoking Section 74 after the period under Section 73 had expired. The Department relied on investigation material, including summons, inspection and statements, but the SCN itself merely alleged “fraud or concealment of facts” without explaining the basis for such allegation. The Supreme Court held that subsequent explanations in the Department’s counter-affidavit could not cure the defects in the SCN and set aside the notice, observing that the factual basis for invoking Section 74 must appear from the SCN itself.
Tata Steel reinforces the same principle. There, Section 74 was invoked for FY 2018–19 to 2020–21 on the basis of an audit objection concerning alleged ITC mismatch and short payment of tax. The Supreme Court examined whether the material on record actually justified resort to the extended limitation under Section 74, thereby reaffirming that Section 74 cannot be invoked mechanically and must be supported by material establishing the statutory grounds for the extended period.
Issues Before the Court in both the matters
- Whether the extended period of limitation under Section 74 of the CGST Act can be invoked merely by reproducing the expressions “fraud”, “wilful misstatement” or “suppression of facts” in an SCN, without setting out the foundational facts supporting such allegations.
- Whether the proper officer is required to independently satisfy himself that fraud, wilful misstatement or suppression of facts had resulted in the short payment or non-payment of tax before invoking Section 74.
- Whether an audit objection or the impending expiry of limitation can, by itself, justify initiation of proceedings under Section 74.
Courts’ Ruling
The Hon’ble Supreme Court in G.R. Infra Projects held that the extended limitation under Section 74 is conditional upon the existence of fraud, wilful misstatement or suppression of facts, and cannot be invoked by mechanically reproducing the statutory language. The SCN itself must disclose the facts and circumstances forming the basis for such allegations. A mere “bland statement” of fraud or concealment, without explaining how the inference arose, is insufficient. The Court further held that the Department cannot supplement an otherwise defective SCN through its counter-affidavit. Since the proceedings under Section 73 were time-barred and the SCN lacked the foundational allegations necessary for Section 74, the SCN was set aside.
The principle was reaffirmed in Tata Steel, where the Supreme Court held that proceedings under Sections 73 and 74 require independent satisfaction of the proper officer. In Section 74 proceedings, an ITC mismatch or short payment alone is insufficient; the officer must be satisfied that it occurred due to fraud, wilful misstatement or suppression of facts. An audit objection cannot, by itself, substitute such satisfaction, nor does the GST framework recognise a “protective assessment” merely to overcome limitation. The SCN and consequential order were accordingly set aside, with liberty to initiate fresh proceedings under Section 74 only if permissible in law and supported by foundational facts.
AMLEGALS Remarks
The judgments in G.R. Infra Projects and Tata Steel safeguard against the mechanical invocation of the extended limitation under Section 74 of the CGST Act. The Supreme Court clarified that a mere tax short payment, ITC mismatch or audit objection does not, by itself, justify Section 74 proceedings. The proper officer must independently satisfy himself that the non-payment or short payment resulted from fraud, wilful misstatement or suppression of facts, and the SCN itself must contain the foundational facts supporting such satisfaction.
Importantly, where Section 73 proceedings are time-barred, the Department cannot merely reproduce the statutory expressions of fraud or suppression to invoke the extended limitation under Section 74. A defective SCN cannot subsequently be cured through counter-affidavits or other pleadings.
Thus, Section 74 is not a mechanism to overcome limitation under Section 73. Its invocation must be supported by specific factual allegations, a causal connection with the alleged tax shortfall, and proper application of mind by the proper officer. Conversely, where the SCN specifically explains what was suppressed, how it was suppressed, and how it resulted in non-payment or short payment of tax, the statutory requirements may be satisfied.
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