Supreme Court Quashes Section 74 GST Notice : Fraud Cannot Be a Mere Label

A time-barred GST demand cannot be revived by mechanically inserting the word “fraud” into a show cause notice.

The Supreme Court’s decision in M/s G.R. Infra Projects Limited Ratlam v. State of Madhya Pradesh & Others delivers a clear message on the use of Section 74 of the CGST Act: if the GST department wants to invoke the extended limitation period, the show cause notice must explain the alleged fraud, wilful misstatement or suppression of facts. A bare reproduction of statutory language is not enough.

The case arose from a show cause notice dated 13 June, 2025 issued to G.R. Infra Projects Limited for FY 2018-19. The notice proposed a GST demand of Rs 1,52,56,431 under Section 74 of the CGST Act read with the MPGST Act.

The Supreme Court ultimately set aside both the notice and the Madhya Pradesh High Court’s order that had earlier refused to interfere.

What triggered the dispute?

G.R. Infra Projects Limited was engaged in the design and construction of roads and highway projects. The GST department initiated an investigation into its business activities for FY 2017-18 to FY 2020-21.

The proceedings involved summons, inspection of the taxpayer’s premises and recording of statements from its accountant, authorised signatory and director. A draft notice-cum-investigation report was prepared on 3 March, 2025, followed by an intimation in Form GST DRC-01A dated 29 April, 2025.

The taxpayer filed preliminary objections. It also pointed out that the draft notice referred to in the intimation had not initially been supplied. The draft was subsequently provided on 27 May, 2025, after which the taxpayer filed an additional response.

On 13 June, 2025, the department issued the final SCN under Section 74.

The proposed demand consisted of differences relating to inter-State outward and inward supplies, allegedly ineligible ITC relating to a site office, and ITC connected with vendors whose registrations were cancelled after the supplies. The largest component was Rs 1,06,61,438 relating to post-supply cancellation of vendors.

Why did Section 74 matter?

The difference between Section 73 and Section 74 was central to the case.

The taxpayer argued that Section 74 could be invoked only where the tax dispute arose because of fraud, wilful misstatement or suppression of facts to evade tax. In the absence of such allegations, the proceedings would fall under Section 73.

That distinction had a direct impact on limitation.

The Supreme Court noted that the final extended date for furnishing the annual return for FY 2018-19 was 31 December, 2020. After considering the applicable limitation provisions and the period excluded pursuant to the Supreme Court’s COVID-19 limitation orders, the Court concluded that the extended limitation under Section 73 expired on 28 February, 2025.

The SCN was issued on 13 June, 2025. It was therefore clearly beyond the limitation period applicable to Section 73.

The department could sustain the notice only if it validly fell under Section 74.

What did the taxpayer argue?

The taxpayer submitted that allegations of fraud, wilful misstatement or suppression must be clearly stated and supported in the SCN itself.

According to the taxpayer, the notice merely used vague expressions relating to fraud and wilful evasion. It did not state what particular act constituted fraud, which facts had been deliberately suppressed, or how any alleged misstatement was wilful.

The taxpayer’s case was that the department could not invoke Section 74 merely to overcome the expired limitation under Section 73.

What was the department’s position?

The State argued that the taxpayer should participate in the adjudication proceedings and raise all its objections before the proper officer.

It also pointed to the statutory appellate remedies available after the adjudication order. According to the department, the taxpayer could file an appeal under Section 107 and pursue further remedies before the GST Appellate Tribunal.

Before the Supreme Court, the State attempted to rely on its counter-affidavit, in which the allegations of fraud and suppression had allegedly been explained in greater detail.

Why did the High Court reject the challenge?

The Madhya Pradesh High Court dismissed the taxpayer’s writ petition.

It observed that an investigation had been conducted and that the draft investigation report ran into 191 pages. In the High Court’s view, the question of whether fraud, wilful misstatement or suppression could ultimately be established should be examined during adjudication.

The High Court also held that the taxpayer could raise the limitation objection before the proper officer. Since the taxpayer had an opportunity to participate in the SCN proceedings and later use the statutory appellate mechanism, the High Court found no reason to interfere at that stage.

The Supreme Court’s decisive response

The Supreme Court took a different view.

When the State sought to explain the allegations by referring to its counter-affidavit, the Court refused to examine it. It held that the legal requirements necessary to validate a notice must be contained in the notice itself.

A department cannot issue a defective notice and later cure it by placing additional grounds in a court affidavit.

On examining the SCN, the Supreme Court found that it contained only a bland statement referring to “fraud or concealment of facts.” It did not explain how fraud had been inferred or how concealment had been detected.

The Court also found the use of the expression “fraud or concealment” significant. It indicated that even the assessing officer was unsure of the precise ground on which Section 74 was being invoked.

According to the Supreme Court, the factual allegations leading to an inference of fraud, wilful misstatement or suppression must emanate from the SCN. Mechanical use of the statutory expressions, without identifying the conduct attributed to the taxpayer, cannot justify the extended limitation period.

The final ruling

The Supreme Court allowed the appeal and set aside the High Court’s order as well as the SCN dated 13 June, 2025.

It also directed the State to desist from taking any further proceedings pursuant to the quashed notice.

What does the judgment ultimately say?

The decision draws an important distinction between an allegation and a label.

A tax discrepancy, an ITC dispute or a mismatch may form the basis of a demand, but it does not automatically establish fraud or suppression. If the department seeks to invoke Section 74, the notice must tell the taxpayer exactly what conduct is alleged to be fraudulent, wilfully incorrect or deliberately suppressed.

Most importantly, the department cannot use the language of Section 74 as a procedural shortcut to revive proceedings that have already become time-barred under Section 73.

The Supreme Court’s conclusion is therefore straightforward: the extended limitation under Section 74 must rest on properly stated facts, not on the mechanical reproduction of statutory terminology.

Disclaimer : This article is for informational purposes only and should not be construed as legal or professional advice. Taxpayers should consult their tax advisor based on the facts of their specific case before taking any action.