Case at a Glance
Following a CAG audit objection on input tax credit mismatch for FY 2018-19 to 2020-21, the GST department issued Tata Steel a show cause notice under Section 74 of the CGST Act, 2017 on 13 June 2025, after the normal limitation under Section 73 had run out. The notice was put in the ‘call book’, then revived as a ‘protective’ demand, and an Order-in-Original followed on 26 December 2025. The Supreme Court held that the extended period under Section 74 needs the Assessing Officer’s satisfaction and foundational facts of fraud, wilful misstatement or suppression in the notice itself; a bland allegation is not enough. The notice and order were set aside, with liberty for fresh Section 74 proceedings concluded before 28 February 2027.
The show cause notice covering FY 2018-19 to 2020-21 followed an audit objection raised by the Comptroller and Auditor General of India about mismatch of input tax credit for the three years and short payment of tax for FY 2019-20. After earlier correspondence, including a request for documents on 27 June 2024, the notice styled under Section 74 was issued on 13 June 2025. On 27 June 2025 the Additional Commissioner moved it to the ‘call book’, keeping it in abeyance, while the Department contested the audit objection before the Public Accounts Committee. On 1 July 2025, a fresh notice revived the earlier one, proposing a protective demand, and an Order-in-Original was passed on 26 December 2025.
Tata Steel argued that without any allegation of fraud, wilful misstatement or suppression, only the three-year period under Section 73 applied, and that a protective notice is unknown to the GST regime. The Additional Solicitor General argued that proceedings began within limitation, that there was suppression and wilful misrepresentation, and relied on Explanation 2 to Section 74.
The Key Question Before the Court
Can the GST department invoke the extended limitation period under Section 74 of the CGST Act through a show cause notice that merely alleges suppression without stating foundational facts, and can a time-barred notice be kept alive as a ‘protective’ demand?
Limitation, the Officer’s Satisfaction and the Foundational Facts Requirement
Writing for the Bench, Justice K. Vinod Chandran worked out the limitation under Section 73, linked to the annual return due dates under Rule 80 of the CGST Rules, the Section 44(1) extension notifications and the Court’s order dated 10 January 2022 in In Re: Cognizance for Extension of Limitation, (2022) 01 SC CK 0096 (Suo Motu WP(C) No. 3 of 2020), which excluded 15 March 2020 to 28 February 2022. On that computation, the notice dated 13 June 2025 came after the Section 73 period had expired, so the question was whether Section 74 could be invoked. The Court rejected reliance on Explanation 2 to Section 74, which was omitted from 1 November 2024, and rejected the argument that proceedings had begun within limitation: Section 73(10) concerns the order, not the notice, and Section 73(2) requires the notice at least three months before the Section 73(10) limit. It also noted that the GST law does not permit a protective assessment of the kind proposed in the revived notice.
The Court held that “the Assessing Officer should enter his satisfaction before a notice is issued”, and for Section 74 that satisfaction must be that fraud, wilful misrepresentation or suppression caused the mismatch or short payment. The Department’s own act of contesting the audit objection before the Public Accounts Committee showed no such satisfaction, and the allegation of suppression in the notice was a “bland statement” without foundational facts. The extended limitation is not for lip service; the foundational facts “should be evident from the notice itself”, and “The mere employment of such words will not indicate an application of mind.”
What the Court Actually Held
- The extended period under Section 74 of the CGST Act can be invoked only when the Assessing Officer is satisfied of fraud, wilful misrepresentation or suppression, and the foundational facts are evident from the notice itself.
- A bland allegation of suppression, without factual basis, does not satisfy Section 74; Explanation 2, omitted from 1 November 2024, did not help the Department.
- A ‘protective’ demand of the kind proposed is not permitted under the GST law.
- The SCN dated 13 June 2025 and the Order-in-Original dated 26 December 2025 were set aside, with liberty to initiate fresh Section 74 proceedings with foundational facts, provided an order is passed before 28 February 2027.
Why This Judgment Matters
- It sets a clear threshold for invoking the five-year limitation in GST adjudication.
- It discourages keeping time-barred notices alive through call book transfers and ‘protective’ revivals.
- It gives taxpayers a strong ground to challenge Section 74 notices based on audit objections alone.
What Should Advocates Take Away From the Judgment?
For Taxpayers
- Check whether a Section 74 notice states concrete facts of fraud, wilful misstatement or suppression; mere words are not enough.
- Compute Section 73 limitation using annual return due dates, Section 44(1) extensions and the COVID exclusion period.
- Note that the Department retains liberty to issue a fresh, properly founded Section 74 notice in this case.
For Counsel
- Rely on this judgment to argue that the officer’s satisfaction must precede and appear from the notice.
- Challenge ‘protective’ demands as alien to the GST scheme.
- Use Section 73(2) and 73(10) to answer arguments that proceedings began within limitation.
Key Takeaways
- Section 74 needs foundational facts in the notice itself.
- Using the words ‘suppression’ or ‘wilful misstatement’ without facts shows no application of mind.
- Protective assessments are not part of the GST regime.
- Fresh Section 74 proceedings remain open but must end in an order before 28 February 2027.
Frequently Asked Questions
What is the difference between Sections 73 and 74 of the CGST Act?
Section 73 covers cases without fraud, wilful misstatement or suppression with a shorter limitation; Section 74 allows an extended period only where such fraud, wilful misstatement or suppression exists, as the Court explained here.
Can an audit objection alone justify a Section 74 notice?
In this case, the Court found no satisfaction of the Assessing Officer, noting that the Department itself contested the audit objection before the Public Accounts Committee, and that the notice’s suppression allegation lacked foundational facts.
Is Tata Steel free of the demand?
Not entirely. The Court set aside the notice and order but gave the Department liberty to start fresh Section 74 proceedings with foundational facts, provided an order is passed before 28 February 2027.
Conclusion
Tata Steel Ltd. v. Union of India, (2026) 08 SC CK 0358 insists that the extended limitation in GST cases is earned by facts, not by formula, and that the officer’s satisfaction must be visible on the face of the notice.
Practical takeaway: When faced with a Section 74 notice issued beyond the Section 73 period, look first for foundational facts of fraud, wilful misstatement or suppression; their absence can be decisive.
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