Section 74 SCN Quashed: SC Bars Counter-Affidavits

When tax authorities issue a Show Cause Notice under Section 74 of the CGST Act to invoke the extended five-year limitation window, the notice itself must articulate specific and detailed foundational facts establishing fraud, wilful misstatement, or suppression of facts with an intent to evade tax. In a decisive judgment delivered by the Supreme Court of India in M/s G.R. Infra Projects Limited Ratlam vs. The State of Madhya Pradesh and Ors. (Civil Appeal No. 11277 of 2026), the Court set aside an SCN issued on 13.06.2025 for FY 2018-19 and barred the revenue from taking any further proceedings, ruling that missing factual allegations cannot be supplied by filing a counter-affidavit in court.

"When an authority has issued a notice or an order, the requirements to make the notice or order valid should be contained in such notice or order and cannot be supplanted by a counter affidavit in Court, where the notice or order is alleged to be invalid for reason of non-application of mind... A bare reading of the notice indicates that but for a bland statement of 'fraud or concealment of facts', nothing is stated as to how fraud was inferred or concealment of facts was detected. What is required for the extended time to be applied are allegations which lead to inference of fraud or concealment as attempted by the assessee resulting in suppression of facts, should emanate from the notice itself."

The decision reaffirms the timeless administrative law doctrine that an administrative order or notice must be judged solely on the grounds stated within its four corners, precluding revenue authorities from manufacturing post-facto justifications once challenged in writ proceedings.

The Facts

The dispute concerned proceedings initiated against M/s G.R. Infra Projects Limited Ratlam, a registered enterprise in Madhya Pradesh, for Financial Year 2018-19:

1. Summons and Extended Investigation: Proceedings commenced with summons issued on 03.03.2022 covering the business affairs of the assessee from FY 2017-18 to FY 2020-21. An inspection was carried out at the business premises, and statements of the Accountant, Authorized Signatory, and Director were recorded on multiple dates.
2. Draft Notice under Section 142(1A): A draft notice-cum-investigation report dated 03.03.2025 was prepared, and an intimation under Section 142(1A) dated 29.04.2025 was issued. The petitioner raised preliminary objections on 14.05.2025 stating that the draft notice had not been served. The draft notice was subsequently served on 27.05.2025, to which the assessee furnished an additional response.
3. Issuance of SCN under Section 74: On 13.06.2025, the proper officer issued a formal Show Cause Notice invoking Section 74 of the CGST Act read with the MPGST Act.
4. Expiry of Section 73 Limitation: For FY 2018-19, the annual return due date was extended to 31.12.2020. The normal three-year limitation under Section 73(10) would have expired on 31.12.2023. Accounting for the COVID-19 pandemic exclusion of one year and two months directed by the Supreme Court in Re: Cognizance for Extension of Limitation (2022-VIL-03-SC), the extended limitation under Section 73 expired on 28.02.2025.
5. High Court Dismissal: The assessee filed a writ petition before the High Court of Madhya Pradesh challenging the SCN dated 13.06.2025 as barred by limitation and devoid of foundational facts. The High Court dismissed the petition, upholding the notice. The assessee approached the Supreme Court via Special Leave Petition.

The Law

• Section 73(1), 73(2) and 73(10) of the CGST Act, 2017 (Non-Fraud Demand): Requires the proper officer to issue an adjudication order within three years from the annual return due date, and to serve the SCN at least three months prior to such deadline.
• Section 74(1), 74(2) and 74(10) of the CGST Act, 2017 (Fraud / Suppression Demand): Enables the officer to invoke an extended limitation period of five years for orders and serve an SCN at least six months prior, conditioned strictly on the presence of fraud, wilful misstatement, or suppression of facts to evade tax.
• Section 44(1) and Rule 80 of the CGST Rules, 2017 (Annual Return Deadlines): Mandates annual return filing by December 31 following the fiscal year, as extended by official statutory notifications.
• The Administrative Law Doctrine of Notice Validity: Traced to the Constitution Bench in Mohinder Singh Gill vs. Chief Election Commissioner ((1978) 1 SCC 405), holding that when a statutory authority makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavits.

Arguments

Appellant Contentions (M/s G.R. Infra Projects Limited)

• Time-Barred Notice: The SCN issued on 13.06.2025 was past the limitation period of Section 73, which had expired on 28.02.2025 even after granting the full benefit of COVID exclusion.
• Absence of Foundational Facts in SCN: The notice contained nothing beyond a bland, mechanical statement alleging "fraud or concealment of facts". The notice completely failed to specify what constituted fraud, how it was inferred, or what specific facts were concealed.
• Disjunctive Recitation Discloses Ambivalence: The use of the word "or" in "fraud or concealment of facts" demonstrated that the assessing officer himself had not formed any clear satisfaction regarding whether the case involved fraud or concealment.
• Counter-Affidavit Inadmissible: The revenue cannot invent or elaborate grounds in a counter-affidavit to salvage a notice that is void on its face for non-application of mind.

Respondent Contentions (State of Madhya Pradesh)

• Detailed Inquiries and Non-Cooperation: The State argued that proceedings had commenced with summons in 2022, statements were recorded, and the assessee failed to appear on 20 scheduled hearing dates.
• Elaboration in Counter-Affidavit: The learned Government Advocate sought to take the Court through the counter-affidavit filed by the State, submitting that the allegations of fraud and suppression had been elaborated extensively therein, justifying invocation of Section 74.

Analysis of the Supreme Court

The Division Bench comprising Justice J.B. Pardiwala and Justice K. Vinod Chandran firmly rejected the State's approach:

1. Refusal to Entertain Counter-Affidavit: The Court refused to look at the counter-affidavit, holding that the statutory requirements to make a notice or order valid must exist within the notice itself. A defective notice cannot be retroactively validated by court pleadings.
2. Definite Expiry of Section 73 Limitation: The Court calculated that the period excluded under the COVID suo motu order for FY 2018-19 was one year and two months, pushing the Section 73 limitation from 31.12.2023 to 28.02.2025. The SCN issued on 13.06.2025 was conclusively hit by limitation.
3. Mechanical Lip Service Prohibited: What is required for extended time to be applied are allegations leading to the inference of fraud or concealment attempted by the assessee resulting in suppression of facts, which must emanate directly from the notice. Mechanical use of statutory words without listing persuading facts fails the legal threshold.

The Decision

Verdict: [Allowed] Civil Appeal Allowed; Show Cause Notice and High Court Order Set Aside; Further Proceedings Barred.

The Supreme Court allowed the appeal, set aside the Madhya Pradesh High Court order as well as the Show Cause Notice dated 13.06.2025, and issued a mandatory direction:

1. The Show Cause Notice dated 13.06.2025 issued under Section 74 is set aside in its entirety.
2. The respondent-State is directed to desist from taking any further proceedings in pursuance of the quashed SCN.
3. Because the normal limitation under Section 73 had expired on 28.02.2025, and the statutory requirements to invoke Section 74 were not satisfied in the notice, no further proceedings can be initiated against the assessee for the subject period.

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