Supreme Court’s Interim Stay on Deficient Section 74 GST Notice: What It Means for Assessees

1. Background of the Dispute

The Supreme Court of India, in GR Infra Projects Limited Ratlam v. State of Madhya Pradesh & Ors., has intervened in an ongoing Goods and Services Tax proceeding by staying further action pursuant to a show cause notice (SCN) issued under Section 74 of the CGST/MPGST Acts.

The SCN in question proposed a substantial demand for FY 2018-19, but the Supreme Court found, on a prima facie assessment, that it lacked the necessary material particulars and only set out numerical figures without disclosing how or why allegations of fraud, wilful misstatement, or suppression of facts were being made.

This interim order underscores a critical principle: invocation of extended limitation and penalty regime under Section 74 requires specific foundational allegations, not mere reproduction of figures or bald accusations.

2. Chronology of Events

2.1 Search and Initiation of Proceedings

  1. Search under Section 67

    • The business premises of GR Infra Projects Limited Ratlam (“the Petitioner”), a company engaged in road and highway design and construction and registered under the CGST/MPGST Acts, were subjected to a search in August 2022 by the GST authorities.
    • The assessee is recorded to have cooperated with the search proceedings.

  2. Post-search actions and draft notice

    • After the search, a draft notice dated March 3, 2025 was prepared by the department.
    • On the basis of this draft, an intimation in Form DRC-01A was issued under Rule 142(1A) on **April 29, 2025`.

  3. Issuance of Section 74 SCN

    • Subsequently, an SCN dated June 13, 2025 was issued under Section 74, alleging tax liability of Rs. 1,52,56,431/- for FY 2018-19.
    • The alleged grounds included:
      • Mismatch between inter-State outward and inward supplies and e-way bill data;
      • Alleged ineligible input tax credit (ITC) on site office-related expenditure;
      • Vendor cancellations after supply.

2.2 Grievance of the Assessee

The assessee argued that:

  • The SCN made sweeping accusations of fraud and wilful evasion for FY 2018-19 but:
    • Did not specify which transactions constituted fraud,
    • Did not indicate how any misstatement or suppression was allegedly made,
    • Contained no particulars to support “intent to evade tax”.
  • On these facts, proceedings, if at all, should have been initiated under Section 73, not Section 74.
  • Since the SCN under Section 74 was vague and bereft of particulars, it was without jurisdiction and liable to be set aside at the threshold itself.

2.3 Stand of the Department

The State of Madhya Pradesh & Ors. contended that:

  • The assessee had already submitted replies to the SCN, and hence could:
    • Participate in adjudication, and
    • If aggrieved, file an appeal under Section 107 of the MPGST Act.
  • In view of the availability of a statutory remedy, the writ petition challenging the SCN was not maintainable.

3. Madhya Pradesh High Court’s View

The assessee had initially approached the Madhya Pradesh High Court by way of WP No. 40749/2025, challenging the validity of the Section 74 notice. The High Court, however, declined to interfere.

3.1 Reasoning of the High Court

The High Court held, inter alia:

  • The draft notice dated March 3, 2025, drawn up after the search under Section 67, contained material indicating wilful evasion of tax to the tune of Rs. 1,52,56,431/- for FY 2018-19.
  • The subsequently issued Section 74 SCN was considered by the Court as containing specific allegations of fraud and wilful suppression.
  • Even assuming that, upon completion of the proceedings, the department fails to establish fraud or suppression, the adjudicating authority may still pass an order-in-original under Section 73 instead of Section 74.
  • Once an SCN is issued under Section 74 after an inspection/search/seizure carried out under Sections 67/69, it is not within the writ court’s jurisdiction under Article 226 to scrutinize whether the proper officer correctly invoked Section 74 or had adequate reasons to allege fraud/wilful misstatement/suppression.