The Supreme Court has ruled that tax authorities must specify factual grounds in show-cause notices alleging fraud under Section 74 of the CGST Act, limiting the use of extended limitation periods.
The Supreme Court has said tax authorities cannot use the longer limitation period under Section 74 of the Central Goods and Services Tax Act by making only a general allegation of fraud or concealment in a show-cause notice. In a ruling on G.R. Infra Projects Ltd of Ratlam, the court held that the notice itself must spell out the facts and circumstances that led the assessing officer to conclude that there had been fraud, wilful misstatement or suppression of facts.
A bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran set aside both the notice and the Madhya Pradesh High Court order that had upheld it. The judges said a mere reference to “fraud or concealment of facts” was not enough when the notice gave no explanation of how that conclusion had been reached. They added that the wording suggested uncertainty even on the part of the assessing officer as to whether the case rested on fraud or concealment.
The court also rejected the state’s attempt to cure the defect by relying on its counter-affidavit in the litigation. It said the validity of a notice must be tested on the wording of the notice itself, not on later explanations offered in court. On that basis, the bench refused to look beyond the statutory notice to material placed in subsequent filings.
The dispute arose from a show-cause notice dated 13 June 2025 relating to the 2018-19 assessment year. According to the court’s calculation, the ordinary limitation period under Section 73 had already expired, even after taking into account extensions linked to the Covid-19 pandemic. The annual return deadline for FY 2018-19 had been extended to 31 December 2020, and the court said the time for issuing a Section 73 notice had run out on 28 February 2025. The state then sought to proceed under Section 74, which carries a longer reach where fraud or suppression is properly alleged.
The case began with summons covering multiple financial years, followed by inspection at the company’s premises and statements from its accountant, authorised signatory and director. The state said the company missed several hearings, and a draft notice-cum-investigation report was later prepared before the final show-cause notice was issued. Even so, the Supreme Court said those investigative steps could not make up for the absence of specific allegations in the statutory notice itself.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
