A Time-Barred GST Demand Cannot Be Rescued by the Word "Suppression"

A DRC-01 lands in 2025 for a tax period in 2018-19. The first instinct is to check the arithmetic; the more useful one is to check the calendar. For a year that old the ordinary window to raise a demand has usually closed, and the notice can stand only if it is validly issued under Section 74 of the CGST Act, 2017.

Which is why so many such notices carry a paragraph reciting fraud, wilful misstatement or suppression of facts. That paragraph does two things at once: it doubles the penalty and it buys the department two more years. On 25 August 2026 the Supreme Court held that it has to be earned.

The decision

In M/s Tata Steel Limited v. Union of India & Ors., 2026 INSC 920 (arising out of SLP (C) No. 16859 of 2026), a Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran set aside a show cause notice dated 13 June 2025 covering financial years 2018-19, 2019-20 and 2020-21, along with the Order-in-Original dated 26 December 2025 that had followed it.

The notice had its origin in audit objections raised by the office of the Comptroller and Auditor General regarding input tax credit mismatch and short payment of tax, and was issued under Section 74 invoking the extended five-year period. The appeal was allowed.

Why limitation, not penalty, was the real stake

The two demand provisions that govern financial years up to 2023-24 run on different clocks.

• Section 73(10) requires the order within three years from the due date for furnishing the annual return for the financial year concerned (or three years from the date of an erroneous refund). Section 73(2) requires the notice at least three months before that outer date.
• Section 74(10) allows five years on the same measure, and Section 74(2) requires the notice at least six months before it.
• Section 75(10) closes the loop: the adjudication proceedings are deemed to be concluded if the order is not issued within the three years under Section 73(10) or the five years under Section 74(10).

So the label is not merely the difference between a penalty of ten per cent of tax or ten thousand rupees, whichever is higher (Section 73(9)), and one equivalent to the tax (Section 74(1)). For an old year it is the difference between a live demand and one the statute has already extinguished.

With Section 73 unavailable, the department needed Section 74 to survive. The Court examined whether it was entitled to it.

Four propositions from the judgment

One — the foundational facts must be in the notice. The words of Section 74 are "not to be mechanically recited in the notice" to enable recovery outside the normal limitation, and the foundational facts leading to the inference of fraud, wilful misrepresentation or suppression "should be evident from the notice itself". A recital is not an allegation: if the notice does not say what was suppressed, and on what material, the extended period is not unlocked.

Two — the satisfaction has to be the assessing officer's own. Proceedings under Section 73 or 74 are initiated on that officer's satisfaction, and for Section 74 it must be a satisfaction that the shortfall or the wrong credit was caused by fraud, wilful misstatement or suppression — not merely that a discrepancy exists.

Three — an audit objection is not that satisfaction. The objections here came from a CAG audit, and the department had itself contested them before the Public Accounts Committee. Having disputed the objection elsewhere, it could hardly claim to be satisfied that evasion had occurred.

Four — GST has no protective assessment. A demand issued simply to keep a time-bound proceeding alive is not a course the Act provides for: there is no statutorily permitted measure of protective assessment under the GST Act.

What the taxpayer got — and did not get

The notice and the order went; the dispute did not. The Court reserved liberty to the department to initiate fresh proceedings under Section 74, provided the foundational facts are articulated and the order is passed before 28.02.2027. That is a reset with a deadline on it, not a discharge.

The Act itself contains a related safety net worth knowing. Under Section 75(2), where an Appellate Authority, the Appellate Tribunal or a court concludes that a Section 74 notice is not sustainable because the charge of fraud, wilful misstatement or suppression has not been established, the proper officer determines the tax as if the notice had been issued under Section 73 — the penalty drops to the Section 73 level — and Section 75(3) requires that consequential order within two years of communication of the direction. For a recent year that mechanism preserves the demand at a lower penalty; for a year where the three-year period has already expired, there may be little left to convert. Which is why, on an old notice, classification and limitation are argued as one point rather than two.

Reading your own notice against this

Two cautions

The first is about scope. The judgment does not hold that Section 74 is unavailable, or that old demands are bad as a class. Genuine evasion exists and the provision exists for it; the Court insisted only that the ingredients be alleged with their facts, in the notice, by an officer who has applied his mind.

The second is about reach. This is a decision of the Supreme Court, and under Article 141 of the Constitution the law it declares binds all courts within India — so unlike a High Court judgment from another State, it is available before the adjudicating authority, the Appellate Authority and the Lucknow Bench of the Allahabad High Court alike. It is worth raising at the reply stage rather than saving for appeal: Section 75(7) forbids confirming a demand on grounds other than those specified in the notice, and the record built at the first stage is the record argued from later.

Where a notice recites suppression for a year otherwise out of time, the questions are narrow and answerable from the papers: what the annual return due date for that year was, what the notice actually alleges as the suppressed fact, and where in the record the officer's satisfaction appears. Better settled before the reply is drafted than after the order is passed.