Supreme Court Clarifies When Section 74 GST Extended Limitation Can Be Invoked

Background of the Dispute

The Supreme Court in Tata Steel Limited Vs Union of India examined the validity of a Show Cause Notice (SCN) issued under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) for three financial years – 2018-2019, 2019-2020 and 2020-2021. The proceedings stemmed from audit objections raised by the office of the Comptroller and Auditor General of India (CAG), alleging mismatch of Input Tax Credit (ITC) and short payment of tax.

The assessee contended that the SCN was bad in law because:

  • It did not contain any concrete allegation of fraud, wilful misstatement, or suppression of facts.
  • In the absence of such foundational allegations, the Department could not resort to Section 74 and its extended five-year limitation, and was instead required to act within the normal Section 73 time frame.
  • The Department itself had earlier placed the issue in the “call book”, indicating that it was not satisfied with the audit objection, and later attempted to revive it on a “protective” basis only because the limitation period was nearing its end, a concept that has no statutory footing under GST law.

The Supreme Court analysed these contentions in light of the statutory framework governing limitation and the conditions for invoking Section 74.

Statutory Scheme on Limitation Under Sections 73 and 74

Normal Limitation Under Section 73

The Court first set out the structure of limitation in the CGST Act:

  • Section 73 applies where there is no allegation of fraud, wilful misstatement or suppression of facts.
  • Section 73(10) stipulates that the order under Section 73(9) must be passed within three years from the date of furnishing of the annual return.
  • Section 73(2) further mandates that the SCN must be issued at least three months prior to the expiry of the time limit specified in Section 73(10).

The obligation to furnish annual returns arises under Section 44 of the CGST Act, while Rule 80 of the CGST Rules, 2017 prescribes the due date as 31st December following the end of the relevant financial year, subject to extensions by notification.

Due Dates for Annual Returns and Extensions

For the financial years in question:

  • FY 2018-2019

    • Statutory due date under Rule 80: 31.12.2019 (following the end of the financial year)
    • However, due to operational and system-related challenges after the implementation of GST from 01.07.2017, the Government successively extended the due date under Section 44(1) notifications.
    • Ultimately, the last extended date for filing the annual return for 2018-2019 stood at 31.12.2020.

  • FY 2019-2020

    • Due date was extended through notifications issued under Section 44(1).
    • The final extended date for this year was 31.03.2021.

  • FY 2020-2021

    • Similarly, the time limit was extended by notifications.
    • The last extended date was 28.02.2022.

Applying the three-year limitation period under Section 73(10) from these final due dates, the limitation under Section 73 would ordinarily have expired on:

  • 31.12.2023 for FY 2018-2019
  • 31.03.2024 for FY 2019-2020
  • 28.02.2025 for FY 2020-2021

Impact of Supreme Court’s COVID-19 Limitation Orders

The Court then considered its own earlier orders in **IN RE Cognizance for Extension of Limitation, Suo Motu Writ Petition (C) No.