Section 74 Is Not a Limitation-Extension Device: Supreme Court in Tata Steel Reaffirms the “Foundational Facts” Test
Chandrasekhar Kutty Chartered Accountant Founding Partner, Sashthi Taxlegal Advisory Services LLP GST Litigation • Advisory • Appellate Representation | Hosur • Bengaluru
Within one week, the Supreme Court has delivered two reportable judgments on the same question: can the Department invoke Section 74 of the CGST Act, 2017 and its five-year window merely by writing the words “fraud, wilful misstatement or suppression of facts” into a show cause notice? On 19.08.2026 the answer in G.R. Infra Projects was no. On 25.08.2026, in M/s Tata Steel Limited v. Union of India & Ors. (Civil Appeal arising out of SLP (C) No. 16859 of 2026, 2026 INSC 920), a Bench of J.B. Pardiwala and K. Vinod Chandran, JJ. said no again, and this time added two further points of considerable practical weight: an audit objection is not the proper officer’s satisfaction, and a “protective demand” is a concept alien to the GST regime. This article examines the Tata Steel ruling, reads it alongside G.R. Infra Projects, and sets out what the two judgments together mean for pending Section 74 litigation.
1. The facts in Tata Steel
The dispute arose from an objection raised by the office of the Comptroller and Auditor General of India on an audit. The objection concerned a mismatch of input tax credit for three financial years, 2018-19, 2019-20 and 2020-21, and a short payment of tax for FY 2019-20.
The chronology, as recorded by the Court, is telling:
| Date | Event |
| 27.05.2024 | Pre-notice communication issued on the audit observations (Annexure P1) |
| 27.06.2024 | Documents sought in support of the assessee’s explanations (Annexure P5) |
| 13.06.2025 | Show cause notice issued, styled as one under Section 74 (Annexure P11) |
| 27.06.2025 | Additional Commissioner intimates that the SCN has been transferred to the “call book”, i.e. kept in abeyance, and that the Department has contested the audit objection before the Public Accounts Committee (Annexure P12) |
| 01.07.2025 | Fresh notice reviving the earlier SCN and proposing a “protective demand” because the proceedings are time-bound |
| 26.12.2025 | Order-in-Original passed |
The assessee’s case before the Supreme Court was simple. There was no allegation, let alone any material, of fraud, wilful misstatement or suppression. Without that, Section 74 could not be invoked, and under Section 73 the notice was hopelessly out of time. The assessing officer himself was not convinced of the audit objection, as the transfer to the call book showed. The revival of the notice was purely a limitation-driven “protective” step, which the GST law does not recognise.
The Department, through the learned ASG, contended that the proceedings had commenced before the Section 73 limitation expired, that the record showed suppression and wilful misrepresentation, and that Explanation 2 to Section 74 permitted “suppression” to mean a mere non-declaration of facts which the assessee was obliged to declare.
2. The limitation reckoner
The Court’s first task was to fix the Section 73 limitation for each year. The reasoning is worth reproducing because it supplies a computation method that practitioners can now cite with the Apex Court’s authority.
Step one: the starting point is the annual return. Section 73(10) requires the order to be issued within three years from the due date for furnishing the annual return. Section 44 read with Rule 80 fixes that date at 31 December following the end of the financial year, but the due date was extended by notifications under Section 44(1) for the early years.
Step two: apply the extended due dates. The Court took the extended due dates as 31.12.2020 (FY 2018-19), 31.03.2021 (FY 2019-20) and 28.02.2022 (FY 2020-21). Three years from those dates gave 31.12.2023, 31.03.2024 and 28.02.2025 respectively.
Step three: exclude the COVID period. The Supreme Court’s order dated 01.01.2022 in In Re: Cognizance for Extension of Limitation (Suo Motu W.P. (C) No. 3 of 2020) directed exclusion of the period from 15.03.2020 to 28.02.2022 in computing limitation under all statutes. The Court held that so much of this period as fell within the three-year window had to be excluded and the limitation pushed forward to that extent.
| Financial year | Annual return due date (extended) | Three years under S.73(10) | COVID exclusion falling within the window | Limitation as computed by the Court |
| 2018-19 | 31.12.2020 | 31.12.2023 | 1 year 2 months (31.12.2020 to 28.02.2022) | 28.02.2025 |
| 2019-20 | 31.03.2021 | 31.03.2024 | 11 months (31.03.2021 to 28.02.2022) | 28.02.2025 |
| 2020-21 | 28.02.2022 | 28.02.2025 | Nil (limitation commenced only on 28.02.2022) | 28.02.2025 |
The result was that the Section 73 limitation for all three years converged on 28.02.2025. The SCN dated 13.06.2025 was past that date.
Two observations on this part of the judgment.
First, the Court applied the suo motu exclusion by adding the overlapping period to the tail end of the three-year window, rather than by any of the other formulations that have been argued in the High Courts. That is now the method to be followed.
Second, the judgment does not refer to the notifications issued under Section 168A extending the Section 73(10) time limit for FY 2018-19 and FY 2019-20. Those notified dates were, in any event, earlier than 28.02.2025, so the outcome would not have changed. But practitioners relying on this judgment in matters where the Section 168A notifications
are in play should be alert to the point.
3. “The proceedings had commenced within limitation” — rejected
The ASG’s argument that the proceedings had begun in May 2024, before the Section 73 limitation expired, was described by the Court as “equally fallacious”. The reasoning in paragraph 12 is short and precise. The limitation in Section 73(10) is the time limit for the order under Section 73(9), not for the notice. The notice, under Section 73(2), must be issued at least three months before that time limit. Pre-notice correspondence, requests for documents and audit exchanges do not stop the clock. Only a notice issued within the statutory window does.
For the three years in question that meant the Section 73 notice had to be issued on or before 30.11.2024. It was issued on 13.06.2025.
4. Explanation 2 to Section 74 — the Department’s own amendment defeats it
The Department leaned on Explanation 2 to Section 74, under which “suppression” included non-declaration of facts or information which a taxable person is required to declare in the return, statement or report. The Court declined to entertain the argument at all, noting that even on the ASG’s own submission the Explanation stood omitted with effect from 01.11.2024.
This is a point that will recur. The omission of Explanation 2 (as part of the Finance (No. 2) Act, 2024 changes that introduced Section 74A) removes the deeming fiction that had allowed the Department to characterise every return-level mismatch as “suppression”. For notices issued after 01.11.2024, the Department must now establish suppression in its ordinary meaning, that is, deliberate withholding with intent to evade, and cannot fall back on the statutory deeming.
5. Satisfaction of the proper officer: an audit objection is not enough
This is the part of the judgment that goes beyond G.R. Infra Projects and is likely to have the widest application.
The Court held in paragraph 11 that proceedings under Section 73 or 74 can be initiated only on the satisfaction of the assessing officer. Even where observations or objections are made on audit, the officer must enter his own satisfaction before a notice is issued. For a Section 74 notice, the satisfaction must be not merely that an ITC mismatch or short
payment has occurred, but that fraud, wilful misrepresentation or suppression led to it.
The Court then applied this test to the record and found that the Department’s own conduct disproved satisfaction. The Department had taken the audit objection to the Public Accounts Committee to contest it. That, the Court said, “itself indicates that there was no satisfaction at the end of the Department, meaning the Assessing Officer” as to the mismatch or short payment, let alone as to suppression. The transfer of the SCN to the call book pointed the same way.
The practical consequence is significant. A very large proportion of Section 74 notices in circulation are audit-driven, whether from CAG audit, departmental audit under Section 65, or the audit wing’s “observation” memos. Where the file shows that the officer issued the notice to protect the Department’s position against an audit objection he did not himself accept, the notice fails at the threshold for want of satisfaction. Assessees should now seek the audit report, the officer’s note-sheet, and any correspondence with the audit authorities under the RTI Act or through the appellate record.
6. “Protective demand” — alien to the GST regime
The Department had revived the notice on 01.07.2025 proposing a “protective demand” on the express ground that proceedings under GST are time-bound. The Court noted, in paragraph 10, that there is no measure of protective assessment statutorily permitted under the GST Act.
The concept of a protective assessment comes from income tax practice, where an assessment may be made on one person to safeguard revenue while the substantive liability of another is in dispute. It has no statutory basis in the CGST Act. A notice issued to “protect” limitation, without the officer’s satisfaction on the ingredients of Section 73 or 74, is not a notice under either provision. This is a ground that should be taken specifically wherever the notice, the file or the Department’s reply discloses that the notice was issued because limitation was running out.
7. The foundational facts test
The core holding, in paragraphs 13 to 15, can be summarised in the Court’s own framework:
- The extended period under Section 74 is not “mere lip service to the provisions”. It is available only where the allegation of fraud, wilful misrepresentation or suppression is made out.
- The foundational facts which led to the inference of fraud, wilful misrepresentation or suppression must be evident from the notice itself.
- The mere employment of the statutory words does not indicate an application of mind, and it is only on an application of mind that the satisfaction can be arrived at.
- The words are not to be mechanically recited in the notice to enable recovery outside the normal limitation.
Applying this, the Court found that the SCN contained nothing beyond a bland statement that ITC had been availed for the three years “without documentary evidence and suppress the facts”. There were no facts stated to make out a deliberate device to evade tax or avail excess ITC. The SCN and the consequential Order-in-Original dated 26.12.2025 were both set aside.
8. The liberty reserved — read this part carefully
The judgment is not an unconditional victory, and this deserves emphasis before the ruling is cited too broadly.
The Court held that the five-year period under Section 74(10) had not expired for any of the three years, because the three-year limitation had, on its computation, ended on 28.02.2025 for all of them. The extended period therefore runs to 28.02.2027. The Department was given liberty to initiate an appropriate proceeding under Section 74, “but with the foundational facts, coming out from the notice itself”, and to pass an order before 28.02.2027.
Two points follow.
First, the suo motu exclusion cuts both ways. The same exclusion that pushed the three year limit for FY 2018-19 from 31.12.2023 to 28.02.2025 also pushed the five-year limit from 31.12.2025 to 28.02.2027. Assessees who have been arguing that the five-year window for FY 2018-19 closed on 31.12.2025 will need to reconsider that position in light of this judgment.
Second, the liberty is conditional. A fresh Section 74 notice for these years must set out foundational facts in the notice itself. If the Department cannot state those facts, and in an ITC-mismatch case arising from an audit objection it very often cannot, the liberty is illusory. But where the Department does have material, it now has a court-sanctioned route and a hard deadline.
9. Reading Tata Steel with G.R. Infra Projects
The two judgments, six days apart, are best understood as a pair.
In G.R. Infra Projects Limited v. State of Madhya Pradesh & Ors. (Civil Appeal No. 11277 of 2026, decided 19.08.2026), the Supreme Court set aside a Section 74 notice for FY 2017-18 to 2019-20 on the ground that it recited “fraud or suppression of facts” in the alternative, without stating what the fraud was, how the suppression was detected, or which of the two the officer was actually alleging. The Court treated the disjunctive pleading itself as evidence that no finding had been arrived at. Critically, it refused to look at the counteraffidavit in which the Department sought to supply the missing facts, holding that a notice must justify itself within its own four corners. With Section 74 gone, the notice was tested under Section 73 and found time-barred. The High Court’s order was set aside and the
proceedings closed.
| G.R. Infra Projects (19.08.2026) | Tata Steel (25.08.2026) | |
| Trigger for the notice | Departmental proceedings | CAG audit objection |
| Defect in the SCN | “Fraud or suppression” pleaded in the alternative; no facts | Bland statement of availing ITC “without documentary evidence and suppress the facts”; no facts |
| Department’s attempt to cure | Counter-affidavit before the Court | Explanation 2 to S.74; “proceedings commenced in time”; protective demand |
| Court’s response | Notice must justify itself within its four corners; counteraffidavit not looked at | Words mechanically recited do not show application of mind; Explanation 2 stood omitted; limitation is for the order, notice must precede it by three months |
| Additional holding | Disjunctive pleading is itself evidence of absence of finding | Audit objection is not the officer’s satisfaction; protective demand alien to GST |
| Outcome | SCN and HC order set aside; proceedings closed | SCN and OIO set aside; liberty to issue fresh S.74 notice with foundational facts, order by 28.02.2027 |
The combined ratio can be stated in one sentence. A Section 74 notice must, on its own face, disclose the facts from which the proper officer inferred fraud, wilful misstatement or suppression; the statutory words alone, whether pleaded conjunctively, disjunctively or by way of a deeming Explanation, do not invoke the extended period, and nothing outside the notice can be used to supply what the notice omitted.
10. What this means for pending matters
Every audit-driven Section 74 notice should now be tested for the officer’s satisfaction. Where the notice reproduces the audit para and adds the statutory words, ask for the file. The Department’s own contest of the audit objection, or its transfer of the matter to the call book, is admissible evidence that satisfaction was absent.
Limitation should be computed the Tata Steel way. Extended annual return due date, plus three years, plus the overlapping COVID exclusion, less three months for the notice. For FY 2018-19 to 2020-21 the Section 73 notice deadline was 30.11.2024. Any Section 73 notice after that date for those years, and any Section 74 notice that fails the foundational facts test, is out of time.
The five-year window for FY 2018-19 is open until 28.02.2027, not 31.12.2025. Advise clients accordingly, and expect the Department to use the Tata Steel liberty as a template for re-issuing notices in other cases before that date.
Explanation 2 is gone for post-01.11.2024 notices. Return-level non-disclosure cannot be deemed suppression. For FY 2024-25 onwards, Section 74A retains “fraud, wilful misstatement or suppression” as the trigger for the higher penalty, so the foundational facts test carries directly into the new regime.
“Protective demand” is a ground in itself. Wherever the notice, the Department’s reply or the order records that the notice was issued because limitation was expiring, plead that the notice was not issued on satisfaction and is not a notice under Section 73 or 74 at all.
In replies and appeals, take these as separate and specific grounds: absence of foundational facts in the notice; absence of the proper officer’s satisfaction; disjunctive or alternative pleading of the Section 74 ingredients; reliance on post-notice material to sustain the extended period; and, where applicable, protective or limitation-driven issuance.
A closing observation
For eight years the extended period has been the Department’s default rather than itsexception, because invoking it cost nothing and secured five years, enhanced penalty and exclusion from every amnesty. G.R. Infra Projects and Tata Steel, read together, restore Section 74 to what the statute intended: a provision for the taxpayer who knew, concealed
and intended to evade, to be invoked only on facts stated in the notice and on the officer’s own satisfaction. A notice that cannot pass that test is a Section 73 notice, and for FY 2017- 18 to 2020-21, Section 73’s clock has run out.
The Department has been told, twice in one week, that the words are not enough. The question now is how many pending notices can survive that standard.
This article is for general information and professional discussion only and does not constitute legal advice. Case references: M/s Tata Steel Limited v. Union of India through the Secretary, Ministry of Finance & Ors., Civil Appeal arising out of SLP (C) No. 16859 of 2026, 2026 INSC 920, Supreme Court of India, judgment dated 25.08.2026 (J.B. Pardiwala and K. Vinod Chandran, JJ.); G.R. Infra Projects Limited v. State of Madhya Pradesh & Ors., Civil Appeal No. 11277 of 2026, Supreme Court of India, order dated 19.08.2026; In Re: Cognizance for Extension of Limitation, Suo Motu W.P. (C) No. 3 of 2020, order dated 01.01.2022.
Sashthi Taxlegal Advisory Services LLP | GST Litigation • Advisory • Appellate Representation | Hosur • Bengaluru