The Supreme Court has reaffirmed a basic but often ignored principle: a notice under Section 74 cannot survive merely because the officer has used the expressions “fraud”, “wilful misstatement” or “suppression of facts”. The notice itself must disclose the material facts, transactions and circumstances from which such serious allegations are drawn.
Case Details
M/s G.R. Infra Projects Limited, Ratlam v. State of Madhya Pradesh & Ors., Civil Appeal No. 11277 of 2026, arising out of SLP (C) No. 33594 of 2025, was decided by the Supreme Court on 19 August 2026. The Bench comprised Justice J.B. Pardiwala and Justice K. Vinod Chandran.
The Supreme Court set aside both the Madhya Pradesh High Court order and the show-cause notice dated 13 June 2025. It further directed the State not to proceed further on the basis of that notice.
Background of the Matter
The notice related to FY 2018-19 and was issued under Section 74 of the CGST Act read with the MPGST Act. The taxpayer contended that the normal limitation applicable under Section 73 had already expired, and therefore the Department could proceed only if the statutory conditions for Section 74 were properly alleged and established in the notice.
For FY 2018-19, the due date for annual return had ultimately been extended to 31 December 2020. After allowing the benefit of the Supreme Court’s COVID limitation exclusion, the Court held that the outer time for action under Section 73 expired on 28 February 2025; hence, the SCN dated 13 June 2025 was clearly time-barred under Section 73.
What Was Wrong With the SCN?
The SCN contained only a bare statement of “fraud or concealment of facts.” It did not explain what particular transaction was fraudulent, what fact was concealed, how the alleged concealment was detected, or how the officer reached the conclusion that the taxpayer had acted with intent to evade tax.
The Supreme Court particularly noticed the use of the word “or” in the expression “fraud or concealment of facts.” In the Court’s view, this itself indicated that the assessing officer was not clear whether the case was one of fraud or one of concealment.
A notice under Section 74 cannot be a formality in which statutory expressions are copied without identifying the factual foundation. If the Department alleges that the entire transaction is bogus, it must identify the transaction, state the material relied upon, disclose the investigation result, and explain the alleged role of the taxpayer in the supposed evasion.
Counter Affidavit Cannot Repair a Defective Notice
The State attempted to explain the allegations of fraud and suppression through its counter affidavit before the Court. The Supreme Court refused to examine such later explanations for sustaining the SCN.
The Court applied the settled principle that when a notice is challenged for non-application of mind or lack of statutory ingredients, the necessary reasons and material must be found in the notice itself. They cannot be added later through a counter affidavit in writ proceedings.
This is highly relevant in GST matters. A departmental officer cannot issue a vague DRC-01A or SCN, treat the taxpayer’s transactions as bogus in a general manner, and later attempt to justify the action by producing investigation papers, internal reports or explanations before the High Court.
Principle Laid Down
1. Section 74 can be invoked only where the SCN itself contains allegations showing fraud, wilful misstatement or suppression of facts with intent to evade tax.
2. A mechanical reproduction of the statutory words is not enough.
3. The SCN must state the factual basis that persuaded the proper officer to form such an opinion.
4. Where Section 73 limitation has expired, the Department cannot use Section 74 as a routine substitute merely to overcome limitation.
54. Defects in the SCN cannot be cured by a counter affidavit or by subsequent explanations during litigation.
Relevance to DRC-01A and Section 74A
Though this judgment directly concerns a notice under the erstwhile Section 74, its reasoning has equal importance where an officer issues a pre-notice intimation in FORM GST DRC-01A and proposes action under Section 74A. A DRC-01A is not a licence to make an unsubstantiated allegation that purchases, sales, ITC or the whole business transaction is “bogus.”
Where the Department alleges bogus invoices, non-existent suppliers, fake movement of goods, circular trading or wrongful ITC, it must put the taxpayer on notice of the precise case to be answered. Mere figures in a DRC-01A, a general allegation of bogus transactions, or a reference to “fraud/suppression” without supporting particulars deprives the taxpayer of a meaningful opportunity to reply. The underlying material must be disclosed sufficiently so that the taxpayer can effectively meet the case.
Of course, the Department need not reproduce every document in the notice. But it must clearly state the relied-upon material, identify the disputed transactions, specify the alleged modus operandi, and explain why the officer alleges fraud, wilful misstatement or suppression. A vague notice cannot become valid merely because the Department may possess investigation material in its own file.
Practical Defence Points
In a reply to DRC-01A, SCN, or during writ/appeal proceedings, the taxpayer may specifically raise the following objections:
- The allegation of bogus transaction is vague and does not identify invoice-wise, supplier-wise or period-wise defects.
- The notice does not disclose the evidence on which the officer relies.
- The notice does not explain how fraud, wilful misstatement or suppression is attributed to the taxpayer.
- Mere availment of ITC from a supplier subsequently found non-compliant does not by itself establish fraud by the recipient.
- The officer cannot invoke the extended period only because the normal period has expired.
- Reasons not contained in the SCN cannot be introduced later through an order, written submission, counter affidavit or departmental record.
- The taxpayer has been denied an effective and meaningful opportunity of rebuttal because the basic allegations and material particulars are absent.
Conclusion
The judgment in G.R. Infra Projects Limited is a timely reminder that a serious charge of fraud cannot be made casually. Section 74 is not meant to be invoked by attaching the label of “fraud” or “suppression” to an ordinary tax dispute after the normal limitation has expired.
Where the Department treats the taxpayer’s entire transactions as bogus and issues DRC-01A or a notice without evidence, particulars or a clear allegation, the action is open to challenge. The notice must speak for itself; it must disclose not only the demand but also the factual basis for invoking the penal and extended-limitation provisions.
