Time-Limit Driven Section 74 GST Notices for FY 2022–23: Legal Risks and Practical Defence Strategy

1. Background: End-of-Limitation Rush for FY 2022–23

For FY 2022–23, many assessees are receiving Form GST DRC-01A intimations around the end of September 2026. The timing is not coincidental. Officers are attempting to meet the outer limitation for initiating proceedings under Section 74 of the Central Goods and Services Tax Act, 2017 by issuing pre-notice communications, often alleging that ITC was wrongfully availed on the basis of fraud or suppression.

However, limitation pressure cannot substitute the statutory preconditions for invoking Section 74. The provision is meant for cases where:

  • Tax is not paid, short paid, erroneously refunded, or
  • ITC is wrongly availed or utilised,

by reason of:

  • Fraud, or
  • Wilful misstatement, or
  • Suppression of facts with intent to evade tax.

Unless these specific elements are both pleaded and supported by evidence, merely using the label “Section 74” or issuing DRC-01A close to the limitation deadline does not result in a valid GST demand.

2. Limitation Framework for FY 2022–23

For disputes in FY 2022–23, the law distinguishes between non-fraud and fraud-type cases:

2.1 Ordinary/non-fraud disputes – Section 73

For routine issues (e.g. eligibility of ITC without any allegation of fraud), the correct provision is Section 73. Under the amended timelines applicable to FY 2022–23:

  • The notice under Section 73(1) must generally be issued within 42 months from the due date of the annual return, and
  • The order must usually follow within 12 months thereafter, subject to the statutory scheme.

2.2 Fraud/suppression cases – Section 74

Where the department alleges fraud, wilful misstatement or suppression with intent to evade tax, Section 74 provides an extended time frame. Under the earlier Section 74 regime that governs FY 2022–23:

  • The show-cause notice (SCN) for FY 2022–23 must be issued on or before 30 September 2026, and
  • The final order under Section 74(10) may be passed **up to 31 March 2029`.

Section 74(2) mandates that the SCN under Section 74(1) be issued at least six months before the last permissible date for passing the order.

Key point: The law speaks of a notice under Section 74(1), not a DRC-01A intimation under Section 74(5) or Rule 142(1A). A pre-notice intimation cannot be retrofitted as a statutory SCN.

Limitation pressure is therefore encouraging hurried use of Section 74 where the underlying dispute may, in truth, be non-fraud in nature and better suited to Section 73.

3. Why Section 74 Cannot Be the Default Route

Section 74 is not a fallback or “catch-all” provision when the department is close to time-bar under Section 73. It is a special provision activated only when certain jurisdictional facts exist:

  • Existence of fraud, or
  • Wilful misstatement, or
  • Suppression of facts,
  • With intent to evade tax, and
  • A demonstrable nexus between those acts and the short payment, erroneous refund or wrongful ITC.

A mere ITC entry in GSTR-3B or a difference between GSTR-2A/2B and GSTR-3B does not, by itself, justify invoking Section 74.

Unless the department can produce evidence linking the assessee to a fraudulent arrangement, or to deliberate misrepresentation/suppression, proceedings under Section 74 are liable to be treated as mis-invoked.

4. What a Legally Sustainable Section 74 Notice Must Contain

A proper Section 74(1) notice is expected to be specific and detailed. At a minimum, it should set out:

  • Invoice/transaction details:

    • Tax period
    • Supplier name and GSTIN
    • Invoice number and date
    • Taxable value and ITC amount questioned

  • Exact condition of Section 16(2) allegedly violated, such as:

    • Non-receipt of goods/services (Section 16(2)(b)),
    • Non-payment to supplier within prescribed time (Section 16(2) proviso),
    • Tax not paid by supplier to the Government (Section 16(2)(c)).

  • Evidence relied upon by the department, including:

    • Proof, if any, that goods were not transported or delivered
    • Indication that consideration was not paid through banking channels
    • Material showing that the supplier failed to discharge tax
    • Documents tying the assessee to the supplier’s alleged fraud
    • Any alleged false declaration or wilful suppression of facts by the assessee

  • Computation details:

    • Basis and working of interest under Section 50
    • Penalty provision invoked and its legal justification
    • Invoice-wise and tax-head-wise workings

  • List of relied-upon documents:

    • Statements recorded under Section 70
    • Inspection or search materials under Section 67
    • Portal risk reports, data analytics, or other investigation outputs

Allegations like “supplier is non-genuine”, “registration cancelled”, or “supplier is non-existent” are only starting points for enquiry. They do not conclusively establish that the assessee’s ITC is inadmissible or that goods were never received.

The Supreme Court has clarified that extended limitation in fraud cases is not available unless the facts truly involve fraud, wilful misrepresentation or suppression. Mis-characterising a regular ITC issue as a fraud case purely to enjoy Section 74 limitation is contrary to that principle.

5. Retrospective Cancellation of Supplier Registration: Limited Implication for Buyer

A recurring pattern in notices is reliance on retrospective cancellation of the supplier’s GST registration to disallow ITC to the recipient. The logic typically runs:

  • Supplier’s registration is retrospectively cancelled; therefore
  • All invoices issued during that period are treated as invalid; hence
  • The assessee’s ITC is inadmissible.