Supreme Court Strikes Down Section 74 GST Notice for Lack of Specific Fraud Allegations

The Supreme Court, in M/s G.R. Infra Projects Limited Ratlam v. State of Madhya Pradesh & Ors., has delivered an important ruling on the validity of Show Cause Notices (SCN) issued under Section 74 of the CGST Act. The Court held that the extended limitation under Section 74 cannot be triggered merely by inserting standard phrases like “fraud”, “wilful misstatement” or “suppression of facts” without detailing the precise factual basis in the notice itself.

This decision will have significant implications for GST adjudication, particularly for cases where the Department attempts to overcome limitation under Section 73 by loosely invoking Section 74.

Case Background and Core Issue

The controversy arose from a Show Cause Notice dated 13 June 2025 issued to the assessee for FY 2018-19 under Section 74 of the CGST Act.

Assessee’s key contention

The assessee argued that:

  • The time limit for initiating proceedings under Section 73 for FY 2018-19 had already expired.
  • The Department could not simply fall back on Section 74 to take advantage of the extended limitation period.
  • For Section 74 to apply, there must be clear, specific, and well-founded allegations of:
    • fraud, or
    • wilful misstatement, or
    • suppression of facts
  • Such allegations must be explicitly and concretely set out in the SCN itself, not merely hinted at or asserted in general terms.

The central legal question before the Supreme Court was whether a bald, formulaic reference to “fraud or concealment of facts” in the SCN was enough to validly invoke Section 74 and its extended limitation.

Supreme Court’s Key Principles on Validity of Show Cause Notices

1. Legality of notice must stand on the document itself

The Supreme Court reiterated a foundational administrative law principle:

An order or notice must be legally sustainable based on the reasons and material disclosed on its face. It cannot be retrospectively justified or “cured” by additional reasons introduced later through affidavits or explanations before a court.

Accordingly:

  • The sufficiency and legality of the SCN had to be assessed solely on the language and particulars contained in the notice dated 13 June 2025.
  • Any further elaboration by the Department in its counter affidavit could not rescue an otherwise defective notice.

2. Determining limitation under Section 73 for FY 2018-19

The Court examined the outer time limit for proceedings under Section 73 for FY 2018-19, taking into account:

  • The extended due date notified for filing the annual return for that financial year; and
  • The exclusion of the COVID-19 limitation period as recognized by the Court.

After factoring in these elements, the Supreme Court concluded that: