The Supreme Court on Tuesday quashed a goods and services tax (GST) show-cause notice issued to Tata Steel for 2018-19 to 2020-21.

It held that the extended five-year limitation under Section 74 of the Central Goods and Services Tax (CGST) Act cannot be invoked merely by using expressions such as “fraud,” “wilful misrepresentation” or “suppression of facts.”

Section 74 of the CGST Act 2017 governs the recovery of unpaid, short-paid, or erroneously refunded tax, or wrongly claimed input tax credit (ITC). It is specifically when caused by fraud, wilful misstatement, or suppression of facts with an intent to evade tax.

A Bench comprising Justice J B Pardiwala and Justice K Vinod Chandran held that a tax authority must demonstrate foundational facts in the show-cause notice to substantiate an allegation of fraud, wilful misrepresentation or suppression before resorting to the extended limitation period under Section 74.

The court was dealing with Tata Steel’s challenge to proceedings arising from audit objections concerning alleged mismatch of ITC for the three financial years and alleged short payment of tax for 2019-20.

The proceedings culminated in a show-cause notice dated June 13, 2025. 

Tata Steel argued that the notice was beyond the normal three-year limitation applicable under Section 73 and there was no basis to invoke Section 74.This section permits a longer limitation period where the short payment or erroneous refund is attributable to fraud, wilful misrepresentation or suppression of facts. 

The department, on the other hand, contended that the proceedings had been initiated before expiry of the Section 73 limitation period and that the material on record indicated suppression and wilful misrepresentation.

It also relied on Explanation 2 to Section 74, though the court noted that the provision had subsequently been omitted with effect from November 1, 2024.