Section 74 CGST — the Supreme Court on what a show cause notice must actually say

A show cause notice issued under Section 74 of the CGST Act buys the department a longer limitation period than Section 73 allows. On 19 August 2026 the Supreme Court held that it only does so if the notice says why. Writing the words “fraud” or “suppression of facts” is not the same thing as alleging them.

The case

The department issued a show cause notice on 13 June 2025 for FY 2018-19, raising a demand of ₹1,52,56,431 under Section 74. The assessee’s answer went to the foundation of the notice rather than the arithmetic: the ordinary limitation under Section 73, after the COVID exclusion, had expired on 28 February 2025. On that reading the notice could only survive if Section 74 genuinely applied, because nothing else would reopen the period.

The Madhya Pradesh High Court declined to intervene. By order dated 29 October 2025 it dismissed the writ petition and directed the company to participate in the show cause proceedings — the familiar answer that a notice is not an adjudication and the assessee should reply and take its chances.

The Supreme Court took a different view of what was actually being challenged.

What the Court held

The Court found that the notice did no more than assert the statutory vocabulary. A bare reading showed a bland statement of fraud or concealment of facts and nothing at all about how the fraud was said to arise. That, the Court held, is not enough to invoke the extended period.

Three strands of the reasoning are worth separating, because each has its own practical consequence.

• The words are not the allegation. Merely using the expressions “fraud” or “suppression of facts” will not do. The allegations that lead to the inference must emanate from the notice itself.
• A counter-affidavit cannot repair the notice. Where an authority issues a notice, the requirements that make it valid must be contained in that notice. They cannot be supplanted later by an affidavit filed in court once the notice is challenged.
• Pleading in the alternative betrays the problem. The department had alleged fraud or concealment. The Court read that disjunctive as an indication that the officer had no clarity about which ground was being alleged at all.

Both the High Court order and the show cause notice were set aside.

Why it matters

The point is jurisdictional, not stylistic. Section 73 and Section 74 are not two drafting styles for the same demand. Section 74 is the source of a power to reach back further, and that power is conditioned on the ingredients the section names. If those ingredients are not pleaded, the extended period is not available; and once the ordinary Section 73 window has closed, a notice that cannot sustain Section 74 has nothing left to stand on.

That is why the Court tested the notice instead of sending the company away to argue the merits. The usual answer — reply to the notice, raise your defence before the adjudicating authority — assumes a notice that validly commenced proceedings. Participation cannot supply a jurisdictional foundation that the notice never had.

The counter-affidavit holding is the part practitioners will use most often. It means the case a taxpayer has to meet is fixed on the day the notice is issued. A department that discovers the particulars later, and explains them for the first time in its reply to a writ petition, is improving its notice after the fact.

There is a second, quieter consequence in the procedural history. The High Court had taken the orthodox route: a show cause notice is not an adjudication, so reply to it and raise the defence before the adjudicating authority. The Supreme Court set that order aside along with the notice. We would read it as a distinction between two kinds of objection rather than a general licence to litigate notices — a dispute about whether the tax is owed belongs in the reply, but an objection that the notice never validly invoked Section 74 goes to whether the proceeding could begin at all. Where limitation under Section 73 has already closed, those two questions collapse into one, and deferring it until after adjudication costs the taxpayer the years the objection was about.

One further limit is worth stating plainly, because it is where commentary tends to overreach. Sections 73 and 74 govern periods up to FY 2023-24. For FY 2024-25 onwards, demands are governed by Section 74A, inserted by the Finance (No. 2) Act, 2024 and brought into force with effect from 1 November 2024, which sets a common limitation while retaining a higher penalty consequence where fraud, wilful misstatement or suppression of facts is established. This judgment concerns Section 74 and a 2018-19 period. The Supreme Court did not interpret Section 74A.

What to check in a Section 74 notice

The practical value of the ruling is that it gives a reader something specific to look for. Working through a notice, we would ask:

• Which section does it actually invoke? Section 74 should appear on the face of the notice, not be inferred from the penalty proposed.
• Does it state facts, or only conclusions? Look for what is said to have been suppressed, when, and how the officer came to know. A paragraph reciting the section is a conclusion.
• Is the allegation specific or disjunctive? “Fraud or suppression or wilful misstatement” carried across as a block is precisely what the Court criticised.
• Had the ordinary limitation already expired? If Section 73 was closed when the notice issued, the entire demand depends on the Section 74 allegation holding up.
• Is the material relied on disclosed? A notice that refers to records or statements without putting them to the assessee leaves the reply guessing.
• Does the demand track the alleged conduct? A figure lifted wholesale from an audit observation rarely corresponds to the fraud actually pleaded.

None of that changes the reply timeline. A notice remains a notice until it is set aside, and the deadline runs while the objection is being formulated — the same discipline that applies to any scrutiny notice in ASMT-10. Whether the proceeding is scrutiny, audit or a Section 74 demand changes what is at stake and who you are dealing with, which we set out in our note on assessment versus audit.

A closing observation

Section 74 notices have become routine in a way the section never contemplated. The extended period is easier to invoke than to justify, and a demand drafted to preserve limitation rather than to state a case has, until now, usually survived long enough to become expensive.

What this judgment restores is an old and unglamorous proposition: the notice is the case. It has to be capable of being answered on the day it is served, by the person who receives it, without the benefit of explanations offered later. Departments that draft to that standard will find their notices harder to dislodge. Taxpayers who read their notices against it will know, early, which fights are about tax and which are about jurisdiction.