Speaking Orders, Section 74 and the End of Copy Paste Adjudication: Circular 258/04/2026

Summary: CBICCircular No. 258/04/2026-GST dated 26 October 2026 sets out detailed expectations for GST officers issuing show cause notices, conducting adjudication and deciding first appeals. It emphasises that notices must clearly identify the taxpayer, relevant facts, evidence, statutory contraventions and quantified demands, while allegations of fraud, wilful misstatement or suppression under Section 74 must be supported by material establishing intent to evade tax. The circular also addresses pre-notice intimation, parallel proceedings by Central and State GST authorities, personal hearings, reasoned adjudication orders, issue-wise demand calculations and the proper consideration of taxpayer submissions and judicial precedents. It clarifies the limits of rectification under Section 161 and provides guidance on appeal scrutiny, limitation, additional evidence and appellate orders. For taxpayers and practitioners, the circular offers a practical framework for challenging vague notices, mechanically invoked extended limitation periods and non-speaking orders, while reinforcing the importance of natural justice, independent reasoning and procedural fairness in GST administration.

Introduction 

Every practitioner has a file somewhere with an order that says the reply has been considered and nothing else. The reply ran to forty pages, the citations were pasted in, the personal hearing was attended, and the order dismissed it all in one line before confirming the entire demand. Circular No. 258/04/2026 GST dated 26.10.2026 is the Board’s answer to that order. It is addressed to its own officers, it is long, and it is worth reading in full because it tells us what the Board now expects from a show cause notice, an adjudication order and an appellate order.

The circular is careful to describe itself as illustrative and non exhaustive, and paragraph 17 says in terms that officers must not cite it in notices or orders. That does not make it useless to the taxpayer. A circular issued under Section 168(1) binds the department, and an order that departs from the Board’s own stated standard is easier to attack in appeal or in writ.

Pre notice intimation is encouraged

The circular begins by reminding officers that Rule 142(1A) allows an intimation in Part A of DRC 01A before a show cause notice under Sections 73, 74 or 74A. The Board wants this used wherever feasible because it gives the taxpayer a chance to explain or pay before a formal notice, and in many cases it avoids the notice altogether. In practice the DRC 01A stage has been treated as a formality in several Circles. The circular gives us something to point to when it is skipped.

What a show cause notice must contain

The circular lays down a structure. The notice must identify the noticee properly, with GSTIN, trade name, registration status, place of business, jurisdiction and the tax periods covered. Where there are several noticees, each must be dealt with separately. It must set out the factual background and the evidence objectively, using expressions like it appears that rather than language that reads as a concluded finding. It must link each act or omission to the specific provision contravened and must not throw in unrelated sections. It must carry a clear statement of charges, a quantified demand, preferably year wise, and a concluding paragraph that names the adjudicating authority, the time for reply and the consequence of not replying.

Two judgments anchor this part. The Telangana High Court in Nice Enterprises held that a notice which merely reproduces statutory provisions without factual particulars violates natural justice. The Supreme Court in G.R. Infra Projects Ltd. v. State of Madhya Pradesh, decided on 19.08.2026, held that whatever is necessary to sustain a notice must be contained in the notice itself and a deficiency cannot be cured later. The Board has adopted both.

Section 74 cannot be invoked on a template

This is the heart of the circular and the part that will matter most in day to day litigation. The Board accepts that the words fraud, wilful misstatement and suppression of facts carry an inbuilt element of intent to evade tax. It quotes the Supreme Court in G.R. Infra to the effect that a bland statement of fraud or concealment, without listing what led the officer to that inference, is a mechanical use of words and does not justify the extended period. It also quotes our own High Court in Sriba Nirman Company v. Commissioner (Appeals), where the Andhra Pradesh High Court read suppression of facts in Section 74 as wilful or deliberate suppression for the purpose of evasion, a view the circular notes has been affirmed by the Supreme Court.

From this the Board draws three conclusions that deserve to be quoted in every reply to a Section 74 notice. First, Section 74(1) or Section 74A(5)(ii) cannot be invoked merely because tax was not paid. Second, these provisions are not meant for scrutiny cases where a discrepancy has simply been noticed, because scrutiny is meant to examine records, not to presume fraud. Third, the provisions can be invoked only where investigation discloses material evidence of such conduct and that evidence is set out in the notice. The circular goes further and says that a second notice on the same facts for a later period cannot ordinarily invoke Section 74 again unless new and independent grounds exist, and that subsequent statements should go under Section 73 or Section 74A(5)(i).

Paragraph 13 then closes the loop at the adjudication stage. The adjudicating authority must examine whether the extended period was validly invoked, especially when the noticee contests it, and if the notice lacks evidence of intent, the authority must record that finding and confine the demand to Section 73 or Section 74A(5)(i). Orders that confirm Section 74 demands with no discussion of intent now stand contrary to the Board’s own instruction.

No parallel proceedings

The circular restates Section 6 and the Supreme Court’s guidelines in Armour Security (India) Ltd. on the bar against the Centre and the State both proceeding on the same subject matter. Cross empowerment disputes are common in our region where State audit and Central anti evasion often land on the same taxpayer in the same year. The circular asks for coordination to avoid multiplicity. Taxpayers facing both should raise Section 6 at the earliest stage and cite paragraph 7.

Hearings and natural justice

Section 75(5) limits adjournments to three, so the Board reads this as a maximum of four hearing opportunities. Requests for adjournment are to be decided judiciously with reasons recorded for refusal. Appearance through an authorised representative under Section 116 must be allowed. Virtual hearings are to be encouraged. The order must record the date, time and attendees of every hearing. Where the adjudicating officer is transferred mid way, the successor must give a fresh hearing, though the outgoing officer should try to pass the order before relinquishing charge. Orders are to be communicated preferably within one month of the hearing.

What an adjudication order must look like

The circular reproduces the Supreme Court’s guidelines in Saheli Leasing on how to write a judgment and asks officers to follow them. The practical directions are these. The order must independently examine each submission in DRC 06 and at the hearing, and must record whether each piece of evidence is accepted, partly accepted or rejected, with reasons. The expression reply has been considered is expressly disapproved. Case laws cited by the noticee must be discussed and if held inapplicable the reason must be stated. Citations must be verified for accuracy and current status. Findings must stay within the grounds of the notice as Section 75(7) requires, and any new issue needs a fresh notice.

Quantification must be issue wise and year wise, separately under CGST, SGST, IGST and UTGST, preferably in a table, showing the amount proposed, the amount confirmed, the amount dropped, interest, penalty and any amounts already paid and appropriated. Interest may be quantified as on the date of the order with a statement that it runs till payment. Penalty must not be mechanical and must respect the discipline of Section 126. The order must end with a conclusion that states the final figures and the provisions under which they are confirmed or dropped.

There is also a line on artificial intelligence that I found refreshingly candid. Where officers use AI tools in adjudication, the output must be independently verified before it enters the order, because the responsibility for the order rests with the officer and not the tool. We have all seen orders with case citations that do not exist. The Board has noticed too.

Rectification under Section 161 has limits

Paragraph 14 is a useful statement of the law on rectification. The power belongs only to the authority that issued the order, and the non obstante clause in Section 161 does not let a senior officer step in under Section 5(2). The error must be apparent on the face of the record, meaning ex facie and not something that needs a long process of reasoning, following Arun Dev Upadhyaya. Errors of law and re appreciation of facts are for appeal, not rectification. Applications must be disposed of through DRC 08 and rectification orders must be sent to the reviewing authority. For taxpayers this cuts both ways. It limits what we can get corrected through a rectification petition, but it also limits what the department can do to an order after it is passed.

First appeals

The last part addresses the Appellate Authority. Preliminary scrutiny under Rule 108 is to be confined to maintainability and completeness, and the circular says merits should not be used to reject an appeal at the registration stage. Limitation is to be decided as a separate preliminary issue and an appeal that is time barred beyond the condonable period is not to be heard on merits, with reasons recorded. Withdrawal applications in APL 01W or APL 03W must be decided within seven days. Hearing dates are to be communicated through the portal and the record of proceedings is to form part of the appellate order itself, not merely sit in an internal file.

Additional grounds under Section 107(10) may be allowed where the omission was not wilful or unreasonable, with a distinction drawn between a new legal ground on the existing demand and a new factual issue that would need investigation. Additional evidence is governed by Rule 112 and the authority must record reasons for admitting or refusing it, give a hearing where it refuses, and give the adjudicating authority a chance to rebut where it admits. Appeals are to be decided within one year as Section 107(13) contemplates. Cross appeals by the taxpayer and the department on the same order are to be heard together and decided by a common order. The summary must go in APL 04 with the final confirmed demand clearly stated. Paragraph 16 applies the hearing, order writing and Section 74 guidelines to the Appellate Authority as well.

How this helps in practice

The immediate use is in drafting. A reply to a Section 74 notice should now have a separate head on the absence of any material showing intent, quoting G.R. Infra, Sriba Nirman and paragraphs 5.1 to 5.4 and 13 of this circular. A reply to any notice should check the notice against the structure in paragraph 4 and point out what is missing, because the Board itself has accepted that such deficiencies cannot be cured later. At the appeal stage, an order that disposes of submissions with a single line or that confirms Section 74 without discussing intent can be attacked as contrary to the Board’s own standard of a speaking order.

The circular will not stop bad orders overnight. But it changes the conversation. Until now a taxpayer arguing that an order is non speaking had only case law to rely on. From today the taxpayer also has the Board saying the same thing to its own officers, in writing, with paragraph numbers.