Supreme Court Sets Aside GST SCN and Order for Lack of Foundational Facts Under Section 74 CGST Act

The Supreme Court has set aside a show cause notice (SCN) and the consequential Order-in-Original issued to Tata Steel Ltd. under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act), finding that the Department failed to establish foundational facts necessary to invoke the extended limitation period for alleged fraud, willful misstatement, or suppression of facts. The decision, delivered by Justices J. B. Pardiwala and K. Vinod Chandran on 25 August 2026, clarifies the requirements for sustaining proceedings under Section 74 and the proper application of limitation provisions under the CGST Act.

Background and Core Issue

The case arose from a show cause notice issued to Tata Steel Ltd. for the financial years 2018-2019 to 2020-2021, following audit objections regarding mismatches in input tax credit (ITC) and short payment of tax. The Department sought to invoke Section 74, which allows for an extended five-year limitation period in cases involving fraud, willful misstatement, or suppression of facts, as opposed to the standard three-year period under Section 73. The appellant contended that the SCN lacked any specific allegation or evidence of fraud or suppression, and that the notice was issued merely as a protective measure as the limitation period was nearing expiry.

Limitation Period and Extensions

The Court examined the statutory timelines for issuing notices and orders under Sections 73 and 74 of the CGST Act. It noted that the deadlines for filing annual returns for the relevant years had been extended by government notifications, and further extended by the Supreme Court’s own orders excluding the period from 15 March 2020 to 28 February 2022 due to the COVID-19 pandemic. As a result, the limitation for issuing a notice under Section 73 was extended to 28 February 2025 for all three financial years in question. The SCN in this case was issued on 13 June 2025, after the expiry of the extended limitation period under Section 73.

Requirement of Foundational Facts for Section 74

The Supreme Court emphasized that proceedings under Section 74 can only be initiated if the Assessing Officer is satisfied that fraud, willful misstatement, or suppression of facts has occurred. The Court found that the SCN issued to Tata Steel Ltd. did not contain any foundational facts or specific allegations to support a finding of suppression or fraud. The mere use of such terms in the notice, without supporting details, was deemed insufficient to justify the invocation of the extended limitation period under Section 74.

The Court also rejected the Department’s reliance on Explanation 2 to Section 74, noting that it had been omitted with effect from 1 November 2024. Furthermore, the Court clarified that the limitation period under Section 73(10) pertains to the issuance of the order, not merely the notice, and that the procedural requirements for notice under Section 73(2) must be observed.

Final Ruling and Liberty to Department

On the facts presented, the Supreme Court held that the SCN and the consequential Order-in-Original could not be sustained due to the absence of foundational facts indicating deliberate evasion or suppression. Both the SCN and the order were set aside. However, the Court noted that the extended two-year period for initiating proceedings under Section 74 had not yet expired for the relevant financial years, as the three-year limitation expired only on 28 February 2025. The Department was granted liberty to initiate fresh proceedings under Section 74, provided that any new notice contains the necessary foundational facts and that any order is passed before 28 February 2027.

With these directions and reservations, the appeal was allowed and all pending applications were disposed of.