Introduction
The Supreme Court of India, in M/s Tata Steel Limited v. Union of India (2026 INSC 920), delivered a landmark judgment on the interplay between limitation periods under Sections 73 and 74 of the Central Goods and Services Tax (CGST) Act, 2017. The case arose from a Show Cause Notice (SCN) issued for financial years 2018-2019 to 2020-2021, premised on audit objections raised by the Comptroller and Auditor General of India. While the Department invoked the extended five-year limitation period under Section 74 by alleging suppression of facts, the Supreme Court scrutinised whether the SCN contained any foundational facts to justify the invocation. Holding that mere recital of statutory words cannot extend limitation, the Court set aside the SCN and the consequential Order-in-Original dated 26.12.2025, yet granted the Department liberty to issue a fresh notice with proper factual basis.
This commentary analyses the legal reasoning of the Supreme Court, focusing on the satisfaction of the Assessing Officer, the necessity of foundational facts for Section 74, and the computation of limitation after the pandemic exclusion. Though rendered by the apex court, its principles will guide the ITAT, High Courts, and adjudicating authorities in similar GST disputes.
Facts
The appellant-assessee challenged an SCN issued under Section 74 of the CGST Act for three financial years: 2018-2019, 2019-2020, and 2020-2021. The SCN purportedly stemmed from an audit objection regarding mismatch of input tax credit (ITC) and short payment of tax for 2019-2020. The assessee argued that there was no allegation of fraud, willful misstatement, or suppression of facts, without which Section 74 could not be invoked for the extended period of five years as opposed to the three-year period under Section 73.
Significantly, the Department itself had placed the initial proceedings in the ‘call book’, meaning ‘kept in abeyance’, and contested the audit objection before the Public Accounts Committee. A fresh notice dated 01.07.2025 revived the earlier SCN and proposed a ‘protective demand’, a concept which the Court noted is alien to the GST regime. The SCN was ultimately issued on 13.06.2025, beyond the extended limitation period computed after excluding the pandemic period directed by this Court in In Re Cognizance for Extension of Limitation.
Reasoning
The Supreme Court’s reasoning encompasses two critical dimensions: the substantive validity of a Section 74 notice and the limitation timeline.
1. Limitation Computation and Pandemic Exclusion
The Court first computed the limitation for issuing an order under Section 73(10). For the relevant years, annual returns were to be filed by extended dates: 31.12.2020 for 2018-2019, 31.03.2021 for 2019-2020, and 28.02.2022 for 2020-2021. Consequently, the three-year limitation period for passing an order would expire on 31.12.2023, 31.03.2024, and 28.02.2025 respectively. The Supreme Court’s order in the suo motu writ petition excluded the period from 15.03.2020 to 28.02.2022 from limitation. Applying this exclusion, the limitation for the first two years was extended to 28.02.2025. For 2020-2021, the limitation already commenced on 28.02.2022, so the pandemic extension did not apply, and expiry remained 28.02.2025. The SCN dated 13.06.2025 was thus past the extended limitation period for all three years.
2. Section 73 vs. Section 74: The Need for Foundational Facts
The Court rejected the Department’s argument that proceedings were initiated before limitation expired, observing that Section 73(10) pertains to the issuance of the order, not the notice. More importantly, the Court examined the requirement for invoking Section 74. The extended five-year period is available only where fraud, willful misstatement, or suppression of facts is alleged. The Court held that the satisfaction of the Assessing Officer must be genuine and based on tangible facts. Even where audit objections exist, the officer must independently apply their mind before issuing a notice. In this case, the SCN contained only a bland statement that ITC was availed ‘without documentary evidence and suppress the facts’ (sic), without any foundational facts to validate the allegation. The Court emphatically stated that merely employing statutory words does not indicate application of mind. The words are not to be mechanically recited to enable recovery outside the normal limitation period.
3. Assessing Officer’s Satisfaction and ‘Call Book’
The Court noted that the Department kept the SCN in the ‘call book’ and took the audit objection to the Public Accounts Committee. This indicated that the Department itself, meaning the Assessing Officer, was not satisfied that any mismatch or shortfall had occurred, let alone suppression. The subsequent revival of the notice on 01.07.2025 proposing a protective demand was without statutory sanction. The concept of protective assessment is alien to the GST regime, which is time-bound and statute-driven.
4. Explanation 2 to Section 74
The learned ASG relied on Explanation 2 to Section 74 to argue that suppression includes mere non-declaration of facts. However, the Court noted that this Explanation was omitted with effect from 01.11.2024. The argument was therefore fallacious and unsustainable.
5. Consequential Relief and Liberty
The SCN dated 13.06.2025, being beyond limitation and lacking foundational facts, was set aside, along with the Order-in-Original dated 26.12.2025. However, the Court held that the extended period of two years under Section 74 was not yet over, as the three-year limitation expired on 28.02.2025 for all subject years. It granted the Department liberty to initiate a fresh proceeding under Section 74, provided the notice sets out foundational facts and an order is passed before 28.02.2027.
Conclusion
The Supreme Court’s judgment in Tata Steel underscores a foundational principle of tax law: extended limitation provisions cannot be invoked as a matter of ritual. A notice under Section 74 must contain the factual substratum that creates a reasonable inference of fraud, willful misstatement, or suppression. The Assessing Officer must be satisfied, not merely on audit objections, but on independent application of mind. This decision also clarifies that the pandemic-related limitation exclusion applies only to the extent that the limitation period overlapped with the excluded dates. The Court’s liberty to the Department to issue a fresh SCN balances the need for revenue protection with the principles of natural justice and strict statutory compliance. For practitioners and taxpayers, the judgment serves as a clear warning: a defective SCN, even if issued in the name of an objection, cannot be sustained merely by employing statutory language. It also confirms that protective assessment has no place in the GST regime. The reasoning will undoubtedly guide the ITAT, High Courts, and adjudicating authorities in ensuring that the extended period of limitation under Section 74 is used only where the notice itself demonstrates the necessary allegations with supporting facts.