Case Note & Summary
The dispute arose from a show cause notice issued by the Department under Section 74 of the Central Goods and Services Tax Act, 2017 concerning three financial years 2018-2019 to 2020-2021, based on audit objections raised by the Comptroller and Auditor General regarding mismatch of input tax credit and short payment of tax. The appellant assessee challenged the SCN on grounds that there were no allegations of fraud, willful misstatement or suppression of facts, which are prerequisites for invoking the extended five-year limitation under Section 74 as opposed to the normal three-year period under Section 73. The matter reached the Supreme Court after the Department issued the SCN dated 13.06.2025, later transferred it to call book on 27.06.2025, issued a fresh notice on 01.07.2025 as a protective measure, and passed an Order-in-Original dated 26.12.2025. The appellant also contended that the Assessing Officer himself was not convinced about the audit objection and had kept the matter in call book, and that the concept of protective assessment is alien to the GST regime. The Department argued that proceedings commenced before expiry of limitation under Section 73, that suppression of material facts and willful misrepresentation were evident, and that Explanation 2 to Section 74, though omitted with effect from 01.11.2024, supported its case. The Court examined the limitation computation under Section 73 read with Section 44 and Rule 80, noting extensions of annual return filing dates and the Supreme Court's suo motu extension of limitation between 15.03.2020 and 28.02.2022. It found that the three-year limitation under Section 73 expired on 28.02.2025 for all subject financial years, making the SCN dated 13.06.2025 time-barred. On merits, the Court held that a notice under Section 74 requires satisfaction of the Assessing Officer that fraud, willful misrepresentation or suppression of facts led to the tax shortfall or excess ITC, and that foundational facts supporting such inference must be evident from the notice itself. The mere recitation of statutory words is insufficient. The Court noted that the Department's contesting of audit objections before the Public Accounts Committee and transfer to call book indicated lack of satisfaction. It rejected reliance on Explanation 2 to Section 74 as it stood omitted, and rejected the protective demand concept. Consequently, the Court set aside the SCN dated 13.06.2025 and the consequential Order-in-Original dated 26.12.2025, but granted liberty to the Department to initiate appropriate proceedings under Section 74, if thought fit, with foundational facts evident from the notice itself and an order passed before 28.02.2027.
Headnote
A) Goods and Services Tax - Show Cause Notice - Extended Limitation - Central Goods and Services Tax Act, 2017, Sections 73, 74 - The Department invoked Section 74 for FYs 2018-19 to 2020-21 on audit objections alleging mismatch of ITC and short payment, but the SCN only contained bland assertion of suppression of facts without foundational facts. The Court held that mere recitation of fraud/willful misstatement/suppression is insufficient to avail extended five-year limitation; foundational facts leading to such inference must be evident from the notice itself (Paras 8, 13-15). B) Goods and Services Tax - Limitation - Computation - Central Goods and Services Tax Act, 2017, Sections 44, 73; Goods and Services Tax Rules, 2017, Rule 80 - Annual return due dates were extended by notifications; the three-year limitation under Section 73(10) expired on 28.02.2025 for all subject FYs after excluding the Supreme Court's suo motu limitation extension between 15.03.2020 and 28.02.2022. The SCN dated 13.06.2025 was beyond the extended Section 73 limitation (Paras 5-7). C) Goods and Services Tax - Proper Officer Satisfaction - Audit Objections - Central Goods and Services Tax Act, 2017, Sections 73, 74 - The Department could not sustain a notice when the Assessing Officer himself was not satisfied and kept the matter in call book; contesting audit objections before the Public Accounts Committee indicated absence of satisfaction. Proceedings under Sections 73/74 can be initiated only on satisfaction of the Assessing Officer (Paras 11, 13). D) Goods and Services Tax - Protective Demand - No Statutory Basis - Central Goods and Services Tax Act, 2017 - The Department issued a fresh notice on 01.07.2025 as a protective measure because limitation was close, but no such protective assessment is statutorily permitted under the GST Act. The Court rejected this justification (Paras 9-10, 12). E) Goods and Services Tax - Explanation 2 to Section 74 - Omitted Provision - Central Goods and Services Tax Act, 2017, Section 74 Explanation 2 - The ASG relied on Explanation 2 to Section 74 to assert suppression from non-declaration, but the Explanation stood omitted with effect from 01.11.2024, and the Court found reliance on it fallacious (Paras 4, 12).
Issue of Consideration
Whether the SCN dated 13.06.2025 issued under Section 74 CGST Act for FYs 2018-19 to 2020-21 was sustainable beyond the normal three-year limitation period absent specific allegations and foundational facts of fraud, willful misstatement, or suppression of facts; and whether limitation under Section 73 had expired before issuance of the SCN considering notifications and suo motu extension.
Final Decision
Appeal allowed; SCN dated 13.06.2025 and consequential Order-in-Original dated 26.12.2025 set aside. Court granted liberty to Department to initiate appropriate proceeding under Section 74, if thought fit, with foundational facts evident from notice itself and order passed before 28.02.2027. Pending applications disposed of.
Law Points
- Extended limitation under Section 74 CGST Act requires foundational facts of fraud
- willful misstatement
- or suppression of facts
- mere incantation insufficient
- satisfaction of proper officer mandatory
- limitation under Section 73(10) is for order not notice
- protective demand not statutorily permitted
- Explanation 2 to Section 74 omitted w.e.f. 01.11.2024
- suo motu limitation extension excluded 15.03.2020 to 28.02.2022
