SC stays further proceedings as SCN under Section 74 finding it prima facie bereft of material particulars beyond mere figures

The Hon’ble Supreme Court in the case of GR Infra Projects Limited Ratlam Versus State Of Madhya Pradesh & Ors. - 2025 (11) TMI 1927 - SC Orderheld that the impugned Show Cause Notice (“SCN”) issued under Section 74 of the GST Act is prima facie bereft of material particulars as it contains only figures without disclosing why there has been fraud, willful misstatement or suppression of facts to evade tax, issued notice returnable in four weeks and stayed further proceedings.​

Facts:

GR Infra Projects Limited Ratlam (“the Petitioner”), a company engaged in design and construction of roads and highway projects and registered under CGST/MPGST Acts, had its premises searched in August 2022 under Section 67 by GST officials to whom full cooperation was extended.​

The State of Madhya Pradesh & Ors. (“the Respondent”) issued intimation under Rule 142(1A) in Form DRC-01A dated April 29, 2025 based on draft notice dated March 3, 2025 prepared post search, followed by SCN dated June 13, 2025 under Section 74 proposing tax demand of Rs. 1,52,56,431/- on allegations of inter-state outward/inward supply mismatch with e-way bills, ineligible ITC on site office, and post-supply vendor cancellations.​

The Petitioner contended that allegations of fraud and willful evasion in SCN for FY 2018-19 are vague without details, making it unsustainable and that notice should have been under Section 73 not under Section 74.

The Respondent contended that writ is not maintainable as Petitioner filed replies and can raise grounds before proper officer, then appeal under Section 107 of the MPGST Act.

The Petitioner’s grievance was that Madhya Pradesh High Court erroneously dismissed writ petition [GR Infra Projects Limited Ratlam Through Its Authorized Signatory Mr. Bhoori Singh Versus The State of Madhya Pradesh And Others - 2025 (11) TMI 484 - MADHYA PRADESH HIGH COURT] refusing to quash deficient SCN under Article 226, approached Supreme Court via SLP challenging High Court order.​

Issue:

Whether the SCN issued under Section 74 of the GST Act is liable to be quashed for being bereft of material particulars regarding allegations of fraud, willful misstatement or suppression of facts, containing only figures without specifics?

Held:

The Hon’ble Madhya Pradesh High Court held as under:

• Observed that, draft notice dated March 3, 2025 prepared post Section 67 search contains material of willful evasion of Rs. 1,52,56,431/- for 2018-19 and the present SCN has specific allegations of fraud and willful suppression.
• Further observed that, even if enquiry under Section 74 fails to establish fraud etc., order-in-original can be passed under Section 73.
• Noted that, once SCN issued under Section 74 post inspection/search/seizure under Sections 67/69, the writ jurisdiction cannot be invoked to examine if proper officer erroneously invoked Section 74 without reasons of fraud/willful misstatement and dismissed the petition.

The Hon’ble Supreme Court in GR Infra Projects Limited Ratlam Versus State Of Madhya Pradesh & Ors. - 2025 (11) TMI 1927 - SC Order held as under

• Prima facie, the Petitioner seems justified in saying SCN bereft of material particulars. Except figures, nothing else stated explaining fraud/willful misstatement/suppression and therefore stayed further proceedings.​

Our Comments:

The Supreme Court's prima facie view aligns with M/s. UNIWORTH TEXTILES LTD. Versus COMMISSIONER OF CENTRAL EXCISE. RAIPUR - 2013 (1) TMI 616 - Supreme Court where it was held that for invoking extended period under proviso to Section 28Customs Act (analogous to Section 74 GST) the Revenue bears burden of proving fraud/suppression with specific averments in SCN.

The Allahabad High Court in Hcl Infotech Ltd Versus Commissioner, Commercial Tax And Another - 2024 (9) TMI 1644 - ALLAHABAD HIGH COURT quashed Section 74 SCN as it lacked reason explaining fraud/willful misstatement/suppression to evade tax and proceedings are held to be without jurisdiction if the reasons are absent, while giving the liberty for issue of fresh SCN under appropriate provision. Similarly, M/s Varanasi Sangam Expressway Pvt Ltd. Thru. Authorized Person Mr. Ramadat Pareek Versus Commissioner Of State Tax, Commercial Tax And Another - 2025 (10) TMI 546 - ALLAHABAD HIGH COURT quashed SCN for absence of foundational averments on fraud/suppression 'with intent to evade tax'.

Relevant Provisions:

Section 74 of the CGST Act, 2017.

“74. Determination of tax, pertaining to the period up to Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts.-

(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.

(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.

(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.

(4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.

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