Extended limitation period for assessment and irregular input tax credit alleged from fraudulent invoices; recovery stayed pending adjudication

Invocation of the extended five-year limitation period for assessment and recovery was challenged as confined to claims based on irregular input tax credit arising from fraudulent invoices issued by a reportedly non-existent supplier; the respondents specific reference in the show cause notice indicated the extended period was invoked only for that contention, a view taken prima facie. The proceedings in respect of the larger part of the claim appear not to have relied on the extended period, and recovery was directed to be stayed pending full hearing and adjudication of the respondent authorities position.

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Issues: (i) Whether the extended five-year limitation period under Section 74 of the CGST Act, 2017 invoked in the show cause notice applies to all claims made by the tax authority or is confined to the allegation of availment of irregular ITC on the basis of invoices issued by non-existent entities.

Analysis: The Court examined the specific language of the show cause notice and the ground expressly invoked for application of the extended period, namely availment of irregular ITC on the basis of invoices purportedly issued by non-existent entities against whom alert circulars had been issued. The analysis focused on whether that specific invocation could be read as extending the five-year limitation to other distinct claims in the notice or whether the extension was limited to the fraud/irregular ITC allegation. Having considered the pleadings and the notice, the Court formed a prima facie view that the reference to the extended period was specifically tied to the allegation concerning non-existent entities and did not, on its face, apply to the other claims raised in the show cause notice.

Conclusion: The Court concluded prima facie that the extended period under Section 74 was invoked only in relation to the allegation of irregular ITC based on invoices of non-existent entities and does not extend to the other claims in the show cause notice; accordingly, the tax authorities were restrained from recovering any sum pursuant to the original order dated January 31, 2025 until the next hearing.

Ratio Decidendi: Invocation of the extended five-year limitation under Section 74 is confined to those claims in respect of which fraudulent availment of ITC on the basis of invoices from non-existent entities is specifically alleged and cannot be applied broadly to unrelated claims without specific invocation.

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