The Supreme Court on Tuesday quashed a goods and services tax (GST) show-cause notice issued to Tata Steel for the financial years 2018-19 to 2020-21, setting aside a ₹1,781 crore tax demand including GST liability and penalty. According to reports from Business Standard, a Bench comprising Justice J B Pardiwala and Justice K Vinod Chandran held that the extended five-year limitation under Section 74 of the Central Goods and Services Tax (CGST) Act cannot be invoked merely by using expressions such as 'fraud,' 'wilful misrepresentation' or 'suppression of facts.' The court emphasized that tax authorities must demonstrate foundational facts in show-cause notices to substantiate allegations of fraud, wilful misrepresentation or suppression before resorting to the extended limitation period. This ruling aligns with recent CESTAT Kolkata decisions, where tribunals have consistently held that extended limitation periods cannot be invoked when taxpayers have been regularly filing returns and paying taxes without suppression.
The proceedings arose from audit objections concerning alleged mismatch of input tax credit (ITC) for the three financial years and alleged short payment of tax for 2019-20. As reported by Business Standard, Tata Steel argued that the notice was beyond the normal three-year limitation applicable under Section 73 and there was no basis to invoke Section 74. The company contended that the department had not established foundational facts to substantiate allegations of fraud, wilful misrepresentation or suppression before resorting to the extended limitation period. The case involved alleged irregular input tax credit claims by Tata Steel from 2018-19 to 2020-21, with the ITC amounting to ₹890.52 crore. According to Tata Steel, the tax credit related to one financial year but was availed in a subsequent year, which it said was permissible under GST law. The company also challenged the notice on grounds of jurisdiction and limitation, with the adjudicating authority confirming the tax demand in December 2025 along with equivalent penalty and interest.
The department contended that proceedings had been initiated before expiry of the Section 73 limitation period and that material on record indicated suppression and wilful misrepresentation. According to Business Standard, the department also relied on Explanation 2 to Section 74, though the court noted that the provision had subsequently been omitted with effect from November 1, 2024. The department sought recovery of the ITC amount along with interest and an equivalent penalty. Section 74 of the CGST Act 2017 governs recovery of unpaid, short-paid, or erroneously refunded tax, or wrongly claimed input tax credit when caused by fraud, wilful misstatement, or suppression of facts with intent to evade tax. However, recent tribunal decisions suggest that extended limitation periods may not be applicable when taxpayers have been regularly filing returns and paying taxes without suppression.
In its August 25 judgment, the Supreme Court allowed Tata Steel's appeal and set aside both the June 2025 show cause notice and the December 2025 order. The court held that merely invoking allegations of suppression was insufficient, requiring tax authorities to establish the foundational facts supporting such allegations in the notice itself. While quashing the proceedings, the Supreme Court allowed the tax department to initiate fresh proceedings under Section 74 of the CGST Act. Any fresh action must clearly set out the foundational facts in the notice and culminate in an order by February 28, 2027. The ruling removes the immediate ₹1,781 crore tax and penalty exposure for Tata Steel, although the dispute could be revived if the department initiates fresh proceedings within the stipulated deadline. The proceedings culminated in a show-cause notice dated June 13, 2025, with the company subsequently approaching the Jharkhand High Court, which disposed of its petition in April 2026 and granted liberty to pursue the matter before the appellate authority.
