Introduction
On 25 August 2026, in M/s Tata Steel Limited v Union of India through the Secretary, Ministry of Finance and Ors., reported as 2026 INSC 920, the Supreme Court decided a question that comes up often in GST disputes. The question was whether the tax department can rely on the longer limitation period under Section 74 of the Central Goods and Services Tax Act, 2017 (the CGST Act) simply by saying in the show cause notice that the taxpayer suppressed facts.
A Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran, in a judgment written by Justice Chandran, held that it cannot. The notice must set out the facts from which fraud, wilful misstatement or suppression is inferred, and mechanically repeating the statutory words does not show that the officer applied his mind. The Court also commented on the department’s practice of “protective” demands and its use of the “call book”, and both comments will matter for future GST audit proceedings.
Background of the Dispute
The case concerned a show cause notice covering the financial years 2018-19, 2019-20 and 2020-21. It arose from an objection raised in an audit by the office of the Comptroller and Auditor General of India. The proceedings began with a communication dated 27 May 2024, which raised audit observations about a mismatch in input tax credit (ITC) for all three years and a short payment of tax for 2019-20. Tata Steel replied, and on 27 June 2024 the department asked for documents supporting those replies. After further correspondence, a show cause notice under Section 74 of the CGST Act was issued on 13 June 2025.
Two weeks later, on 27 June 2025, the Additional Commissioner informed the company that the notice had been moved to the “call book”, which in departmental usage means it was kept in abeyance. The communication also said that the department had challenged the audit objection itself before the Public Accounts Committee. Even so, on 1 July 2025 a fresh notice was issued that revived the earlier one and proposed a protective demand, because GST proceedings are time-bound. An Order-in-Original followed on 26 December 2025.
Arguments Before the Supreme Court
Dr. A.M. Singhvi and Mr. Kavin Gulati, Senior Advocates for Tata Steel, argued that the notice contained no real allegation of fraud, wilful misstatement or suppression of facts. Without such an allegation, they said, Section 74 and its five-year period could not be used, and the department was limited to the three-year period under Section 73. They also argued that the assessing officer was not convinced by the audit objection himself, as shown by his decision to put the matter in the call book. In their view, the later revival of the notice as a protective measure, only because limitation was about to expire, rested on a concept that has no place in the GST regime.
The Additional Solicitor General, Mr. S. Dwarakanath, appeared for the department. He argued that the proceedings had begun before the Section 73 limitation expired and that the record clearly showed suppression of material facts and wilful misrepresentation. He also relied on Explanation 2 to Section 74. That Explanation treated even a failure to declare facts or information that a taxpayer was required to declare as suppression.
How Limitation Works Under Sections 73 and 74
The Court first set out how limitation is calculated under the CGST Act. Section 73 applies to tax not paid, short paid or wrongly refunded, and to ITC wrongly availed or utilised, where there is no fraud, wilful misstatement or suppression. Under Section 73(10), the proper officer must issue the adjudication order under Section 73(9) within three years from the due date for filing the annual return for the relevant financial year. Section 73(2) requires the show cause notice to be issued at least three months before that deadline. Section 74 applies the same mechanism to cases involving fraud, wilful misstatement or suppression, but it allows five years instead of three.
Because limitation runs from the due date of the annual return, the Court looked at Section 44 of the CGST Act and Rule 80 of the Central Goods and Services Tax Rules, 2017. Together, these require the annual return to be filed electronically by 31 December after the end of the financial year. In the early years of GST, problems with the new electronic systems led the government to extend these deadlines by notifications under Section 44(1).
After several extensions, the last dates for filing the annual returns for 2018-19, 2019-20 and 2020-21 became 31 December 2020, 31 March 2021 and 28 February 2022 respectively. On those dates, the three-year period under Section 73 would ordinarily have ended on 31 December 2023, 31 March 2024 and 28 February 2025.
Effect of the Supreme Court’s COVID-19 Limitation Orders
The Court then applied its own pandemic-era directions. In Suo Motu Writ Petition (C) No. 3 of 2020, In Re: Cognizance for Extension of Limitation, the Court had excluded the period from 15 March 2020 to 28 February 2022 from the calculation of limitation under various statutes. This excluded period fell partly inside the three-year windows for 2018-19 and 2019-20: one year and two months for 2018-19, and eleven months for 2019-20. Adding those periods back moved the limitation for both years to 28 February 2025.
For 2020-21, the Court held that the exclusion did not apply. Limitation for that year started only on 28 February 2022, the extended due date of the annual return, which was also the last day of the excluded period. So the limitation for 2020-21 stayed at 28 February 2025. As a result, the three-year limitation for all three years ended on the same date, and the show cause notice dated 13 June 2025 was outside the Section 73 period for every year in question.
Why the Department’s Limitation Argument Failed
The department argued that because proceedings started in May 2024, they began within time. The Court rejected this and called it fallacious. It explained that Section 73(10) sets a deadline for passing the order under Section 73(9), not for starting the process. Section 73(2) separately requires the notice to be issued at least three months before that deadline. Sending audit communications and asking for documents does not satisfy that requirement. What matters under the statute is a valid notice issued in time and an order passed within the limitation period.
Since the notice was beyond the Section 73 period, the department could keep it alive only under Section 74. That depended on whether the notice properly alleged fraud, wilful misstatement or suppression of facts.
Satisfaction of the Proper Officer Comes First
A central part of the judgment is the Court’s statement that proceedings under Section 73 or Section 74 can begin only on the satisfaction of the assessing officer. An audit observation or objection does not replace that satisfaction. The officer must record his own satisfaction before a notice is issued. For a notice under Section 74, the officer must be satisfied of two things. The first is that a mismatch in ITC or a short payment of tax has actually occurred. The second is that it happened because of fraud, wilful misstatement or suppression.
On the facts, the Court found that this satisfaction was missing. The department had taken the audit objection to the Public Accounts Committee, which in the Court’s view showed that the department itself, meaning the assessing officer, was not satisfied that any ITC mismatch or short payment had occurred. If the officer was not satisfied that a shortfall existed, he could not have been satisfied that the shortfall resulted from suppression.
Explanation 2 to Section 74 Could Not Help the Department
The Additional Solicitor General relied on Explanation 2 to Section 74, which had given “suppression” a wide meaning that included non-declaration of facts or information that a taxpayer was required to declare in its returns, statements or reports. The Court refused to apply it. It noted that the department itself accepted that Explanation 2 was omitted with effect from 1 November 2024, which was before the show cause notice of 13 June 2025 was issued. The department therefore could not rely on that provision to support the allegation of suppression in a notice issued after it had been omitted.
Foundational Facts Must Appear in the Show Cause Notice Itself
The main holding of the case is about what a Section 74 notice must contain. The notice in this case said only that ITC had been availed “without documentary evidence and suppress the facts”. The Court found that it contained no foundational facts to support the allegation of suppression.
The Court said that the extended limitation period under Section 74 is not satisfied by “mere lip service” to the provision. The extended period exists to recover excess benefits, short payments or excess refunds where there is fraud, wilful misstatement or suppression. For that reason, the facts that lead to such an inference must be evident from the notice itself. Using the statutory words does not show application of mind, and only application of mind can produce the required satisfaction. In the Court’s words, these words “are not to be mechanically recited in the notice to enable recovery outside the normal limitation provided under the statute.”
Applying this test, the Court found nothing in the notice showing that Tata Steel had used a deliberate device to evade tax or to avail excess ITC. It held that scattered, bare statements of suppression, made only to obtain the extended period, would barely suffice and would put a Section 74 notice at risk. The show cause notice was therefore set aside, and the Order-in-Original dated 26 December 2025 was set aside with it.
Protective Demands and the Call Book Under GST
The Court also addressed how the notice was revived. It recorded that the notice of 1 July 2025 proposed a protective demand only because GST proceedings are time-bound, and observed that the GST law does not provide for protective assessment. The department had first placed the notice in the call book, which signalled that it had doubts about the audit objection.
It then revived the notice to stop limitation from running out. In the Court’s view, this sequence was inconsistent with the requirement that the officer be satisfied before issuing a notice. A demand raised only to preserve the department’s position, while its own view on the underlying objection remained unsettled, cannot replace the statutory satisfaction required under Sections 73 and 74.
Outcome and Liberty Granted to the Department
The Court allowed the appeal but left a limited path open for the department. Since the three-year limitation for all three years ended on 28 February 2025, the further two years available under the five-year period of Section 74 had not yet run out. The Court therefore allowed the department, if it considered it appropriate, to start fresh proceedings under Section 74. Two conditions were attached. The foundational facts supporting fraud, wilful misstatement or suppression must appear in the notice itself, and the final order must be passed before 28 February 2027.
Conclusion
Tata Steel Ltd v Union of India establishes a clear rule for GST adjudication: the extended limitation period under Section 74 of the CGST Act depends on the facts stated in the notice, not on the words used. The Supreme Court held that proceedings must rest on the proper officer’s own satisfaction, that an audit objection cannot stand in for that satisfaction, and that an allegation of suppression must be supported by specific facts stated in the show cause notice.
It also held that limitation under Section 73(10) is measured by the date of the order, read with the notice requirement in Section 73(2), and that the GST statute does not provide for protective demands. Notices issued in this form, whether after an audit objection or to beat a limitation deadline, are therefore open to being quashed.
The evolving tax regime under the Income Tax Act 2025: Reforming India’s Tax Regime also underscores the importance of clear statutory requirements when determining tax liabilities and limitation periods.
