Tata Steel Ruling: SC Outlaws Call Book in GST

Under the Goods and Services Tax statutory framework, tax officers cannot circumvent statutory limitation periods by consigning demand notices to internal administrative "call books" or reviving them as "protective demands." In a landmark judgment delivered by the Supreme Court of India in M/s Tata Steel Limited vs. Union of India and Ors. (2026 INSC 920 / Civil Appeal No. 12020 of 2026), the Court struck down a Section 74 Show Cause Notice and consequential Order-in-Original for FY 2018-19, 2019-20, and 2020-21, establishing that "call book" procedures and protective demands are completely alien to GST, while articulating the critical conditions under which liberty may be reserved to re-initiate proceedings before the outer five-year limitation expires.

"At the outset we have to notice that the proceedings under Section 73/74 can be initiated only on the satisfaction of the Assessing Officer... The fact that the Department had taken up the objections on audit with the Public Accounts Committee itself indicates that there was no satisfaction at the end of the Department, meaning the Assessing Officer, as to the mismatch or the short fall of payment of tax having occurred, not to say anything about the suppression alleged... The SCN on the above reasoning, cannot be sustained and the consequential Order-in-Original dated 26.12.2025 too is put in peril and both are set aside. However, the extended period of two years is not yet over, for all the three years since the three-year limitation expired only on 28.02.2025 for all the subject financial years. It would be open for the Department, if it is thought fit, to initiate an appropriate proceeding under Section 74, but with the foundational facts, coming out from the notice itself and an order being passed before 28.02.2027."

The ruling provides vital clarity on the intersection between CAG audit objections, the subjective satisfaction of the proper officer, and the distinct statutory horizons that differentiate outright SCN quashing from quashing with liberty.

The Facts

The appellant, M/s Tata Steel Limited, faced demand proceedings covering three consecutive financial years—FY 2018-19, FY 2019-20, and FY 2020-21:

1. Origin in CAG Audit Objections: The proceedings arose from an audit conducted by the office of the Comptroller and Auditor General of India (CAG), raising observations regarding input tax credit (ITC) mismatches across all three fiscal years and short payment of tax for FY 2019-20.
2. Exchange of Inquiries and SCN: The department initiated inquiries via communication dated 27.05.2024, followed by letters seeking documents. After replies were submitted, the proper officer issued a Show Cause Notice under Section 74 on 13.06.2025.
3. Consignment to "Call Book": Shortly after issuing the notice, the Additional Commissioner intimated the assessee via communication dated 27.06.2025 that the SCN had been transferred to the departmental "call book" (meaning kept in abeyance), because the department itself was contesting the CAG audit objection before the Public Accounts Committee (PAC).
4. Revival as a "Protective Demand": Once statutory deadlines loomed, the department issued a fresh notice on 01.07.2025 reviving the earlier notice and proposing a "protective demand" to prevent limitation from running out. An Order-in-Original confirming the demand was passed on 26.12.2025.
5. High Court and SLP: The assessee challenged the proceedings before the Jharkhand High Court (2026-VIL-410-JHR), which declined to quash 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): Limitation for issuing an order is three years from the annual return due date, and notice must be served at least three months prior to the order deadline.
• Section 74(1), 74(2) and 74(10) of the CGST Act, 2017 (Fraud Demand): Extends the order limitation to five years from the annual return due date, provided the shortfall arises by reason of fraud, wilful misstatement, or suppression of facts with intent to evade tax.
• Section 44(1) and Rule 80 of the CGST Rules, 2017 (Annual Return Extensions): The statutory annual return deadlines were extended by successive notifications to 31.12.2020 (FY 2018-19), 31.03.2021 (FY 2019-20), and 28.02.2022 (FY 2020-21).
• Supreme Court COVID-19 Exclusion Doctrine: Under In Re: Cognizance for Extension of Limitation (2022-VIL-03-SC), limitation between 15.03.2020 and 28.02.2022 was excluded across all statutes.
• Explanation 2 to Section 74 (Omitted w.e.f. 01.11.2024): Formerly defining suppression to include non-declaration of facts, omitted by Parliament via the Finance (No. 2) Act, 2024.

Arguments

Appellant Contentions (M/s Tata Steel Limited)

• Total Absence of Fraud Allegations: The SCN was devoid of any allegation of fraud, wilful misstatement, or suppression of facts. It merely recited a bland statement alleging availment of ITC "without documentary evidence and suppress the facts".
• "Call Book" and "Protective Demands" Unknown to GST: The GST statute does not contain any provision authorizing officers to place notices in a "call book" or to make "protective assessments." Such administrative contrivances borrowed from legacy excise law have no statutory existence under GST.
• Absence of Assessing Officer's Satisfaction: The fact that the department placed the matter in the call book and contested the audit objection before the PAC proved that the Assessing Officer had not formed independent satisfaction regarding any shortfall or evasion.
• Section 73 Time-Bar: Accounting for the annual return extensions and COVID exclusions, the Section 73 limitation expired on 28.02.2025. The SCN dated 13.06.2025 was conclusively barred by limitation.

Respondent Contentions (Department / Union of India)

• Commencement Prior to Limitation Expiry: The learned Additional Solicitor General (ASG) contended that proceedings commenced with inquiries in May 2024, prior to the expiry of limitation under Section 73.
• Suppression under Explanation 2: The revenue relied on Explanation 2 to Section 74 to assert that mere non-declaration of facts or information that an assessee is obliged to declare constitutes statutory suppression.
• Five-Year Window Available: The department argued that it was entitled to utilize the extended five-year limitation window under Section 74 to recover excess ITC.

Analysis of the Supreme Court

Authored by Justice K. Vinod Chandran for the Bench, the Supreme Court systematically dismantled the department's submissions:

1. Section 73 Limitation Governs Orders, Not Initial Inquiries: The Court rejected the argument that issuing pre-notice communications in 2024 saved limitation. Section 73(10) prescribes a three-year deadline to pass the adjudication order, and Section 73(2) mandates notice at least three months prior. Normal limitation expired on 28.02.2025 for all three financial years. The SCN of 13.06.2025 was conclusively time-barred under Section 73.
2. Explanation 2 Inapplicable: The Court noted that Explanation 2 to Section 74 stood omitted with effect from 01.11.2024 and could not be invoked to manufacture suppression out of mere non-declaration.
3. PAC Contest Disproves Independent Satisfaction: Initiating proceedings under Section 73 or 74 requires the subjective satisfaction of the Assessing Officer. When the department itself challenged the CAG audit objection before the PAC, it was evident that the Assessing Officer possessed no independent satisfaction that an evasion or shortfall had occurred.
4. "Call Book" and Protective Demands Prohibited: The Court affirmed that protective assessments are alien to the GST regime. Field formations cannot park notices in call books to escape statutory time limits.
5. Lip Service Does Not Satisfy Section 74: Mechanical repetition of the phrase "without documentary evidence and suppress the facts" without stating foundational facts is mere lip service, putting the notice under Section 74 in peril.

The Decision

Verdict: [Allowed] Civil Appeal Allowed; SCN and Order-in-Original Set Aside; Liberty Reserved to Revenue under Section 74 before 28.02.2027.

The Supreme Court allowed the appeal and set aside both the Show Cause Notice dated 13.06.2025 and the consequential Order-in-Original dated 26.12.2025. However, the Court made a crucial legal distinction regarding limitation:

Why Liberty Was Reserved (The Crucial Difference with G.R. Infra Projects)

In M/s G.R. Infra Projects Limited, the Court quashed the SCN outright with no liberty because the Revenue had exhausted multi-year investigations and Section 73 was barred. In Tata Steel, the Court observed:

1. The normal three-year limitation under Section 73 expired on 28.02.2025 for all three financial years.
2. However, the extended five-year period under Section 74 (which provides an additional two years from 28.02.2025) had not yet run out, expiring only on 28.02.2027.
3. Because the outer statutory window of five years was still active, the Supreme Court granted liberty to the department to initiate appropriate proceedings under Section 74, subject to two non-negotiable conditions:
   • Foundational facts demonstrating fraud, wilful misstatement, or suppression must emanate directly from the notice itself; and
   • The final adjudication order must be passed strictly before 28.02.2027.

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