GST Department cannot invoke Section 74 without specific
allegations of fraud, wilful misstatement or suppression of facts—Madras High
Court
Introduction
In a significant decision
delivered on 11 November 2025, the Madurai Bench of the Madras High
Court, presided over by Hon’ble Justice G.R. Swaminathan, quashed six
GST assessment orders issued against an assessee for the financial years 2018–19
to 2023–24. The Court held that the department had wrongly invoked Section
74 of the Tamil Nadu GST Act, 2017, even though the essential preconditions
for invoking this section were completely absent. The judgment reiterates a
clear legal principle: extended limitation under Section 74 can be used only
when fraud, wilful misstatement, or suppression of facts is specifically
alleged and supported by material. Without these “jurisdictional facts,”
the entire proceeding becomes illegal.
This ruling is important
because GST authorities frequently issue notices under Section 74 as a routine
measure—even in cases where simple non-payment or short payment of tax is
involved—without alleging fraud or suppression. The judgment clarifies that such
practice is not permissible and that authorities must strictly adhere to
statutory requirements.
Parties and
Case Details
- Case Title:
Neeyamo Enterprise Solutions Private Limited vs. Commercial Tax Officer
(Intelligence)
- Case Numbers:
W.P.(MD) Nos. 30453 to 30458 of 2024
- Court:
Madurai Bench, Madras High Court
- Order Date:
11 November 2025
Summary of
the Case
The petitioner challenged
six assessment orders passed under Section 74 of the TNGST Act, alleging tax
short payment, wrong availment of ITC, and other discrepancies for multiple
financial years. These orders were based on show cause notices issued after a
surprise inspection under Section 67 at the petitioner’s business
premises in September 2023.
The petitioner argued
that the show cause notices and final orders did not contain any allegation
of fraud, wilful misstatement, or suppression of facts, which are essential
requirements for invoking the extended limitation applicable under Section 74.
The High Court accepted this argument and held that Section 74 proceedings were
completely without jurisdiction because the mandatory preconditions were missing
in the notices and orders.
The Court quashed all six
orders, clarifying that authorities may proceed under Section 73 if
warranted, but cannot misuse Section 74 to extend the time limit or impose
higher penalty.
Facts of
the Case
The petitioner, Neeyamo
Enterprise Solutions Pvt Ltd, operates from Madurai and is engaged in IT
service activities. In September 2023, officers of the State Tax Intelligence
Wing conducted a surprise inspection under Section 67 of the TNGST Act. During the
inspection, nine defects were reported. These included issues such as mismatch
of turnovers, ITC discrepancies, non-maintenance of accounts, and other alleged
irregularities. Based on this inspection, the department issued show cause
notices dated 10 May 2024 for the years 2018–19 to 2023–24.
However, the petitioner
did not file any response to the show cause notices. As a result, the
respondent proceeded ex parte and passed final orders under Section 74,
determining tax, interest, and penalty amounts.
The petitioner chose not
to file appeals but instead approached the High Court directly through writ
petitions, challenging the validity of the notices and orders. The primary
argument was that Section 74 could be invoked only when the taxpayer is
charged with fraud, wilful misstatement, or suppression, but in this case,
the notices did not allege any such conduct.
Arguments
by the Respondent (State Tax Department)
The Additional Government
Pleader argued that:
- The petitioner did not respond to the
show cause notices.
- The petitioner also did not file an
appeal within time.
- Since statutory appeal remedy was
available, the petitioner should not be allowed to bypass that remedy and
directly approach the High Court.
- The inspection showed serious
discrepancies, and therefore Section 74 was rightly invoked.
However, during the
hearing, the State could not point out any portion of the show cause notices
or orders where fraud, wilful misstatement, or suppression of facts was
alleged.
Arguments
by the Petitioner
The petitioner argued
that:
- A show cause notice under Section 74
must clearly allege fraud, wilful misstatement, or suppression.
- Neither the notices nor the orders
contained such allegations.
- Mere non-payment or short payment of
tax does not automatically justify invoking Section 74.
- The notices were mechanically drafted
and showed signs of pre-determined conclusions.
- The department wrongly used the word
“determined” in the show cause notice, which showed that the authority had
made up its mind even before hearing the taxpayer.
- The Central Board of Indirect Taxes
& Customs (CBIC) Circular dated 13 December 2023 also clarifies that
Section 74 cannot be invoked unless fraud or suppression is present.
Court’s
Analysis and Findings
1. Section 74 Requires
Specific Allegation of Fraud or Suppression
The Court emphasized that
Section 74 can be used only when fraud, wilful misstatement, or suppression
has led to non-payment of tax or wrongful ITC. These elements are jurisdictional
facts, meaning that without them the officer has no legal authority
to invoke Section 74.
The Court also cited
Supreme Court judgments under the Excise Act, reiterating that:
- Fraud and suppression must be
specifically stated.
- Extended limitation must be strictly
construed.
- There must be intent to evade tax,
not mere omission.
2. Show Cause Notice Was
Defective
The Court held that the
notices did not contain:
- Any allegation of intent to evade tax
- Any factual material showing
suppression or misstatement
- Any explanation as to how the
extended limitation was attracted
The use of the word “determined”
in the show cause notice further indicated that the authority had pre-decided
the liability before hearing the petitioner.
3. Section 74 Cannot Be
Invoked Without Jurisdictional Facts
Justice Swaminathan
observed that:
Mere non-payment, short
payment, or even evasion of tax is not enough. It must be “by reason of” fraud,
wilful misstatement or suppression. Without this link, Section 74 cannot apply.
Thus, the foundation of
the entire proceeding was missing.
4. CBIC Circular Supports
the Petitioner
The Court relied on
paragraphs 3.1 to 3.3 of the CBIC Circular dated 13.12.2023, which clarifies
that:
- Section 74 should not be invoked in
routine cases
- There must be material evidence of
fraud
- Notice must explain why extended
limitation is justified
The circular is binding
on tax officers.
5. No Remand When
Jurisdiction Itself Is Missing
The Court clarified an
important principle: When an order is invalid due to absence of jurisdiction,
the Court cannot remand the case to the department to issue a fresh
notice. Remand applies only when notice was not served properly or opportunity
of hearing was not given. In this case, the very basis—fraud or suppression—was
absent. Hence, the Court simply quashed the orders.
Judgment
The Madras High Court quashed
all six assessment orders and corresponding show cause notices because they
did not satisfy the mandatory conditions of Section 74.
However, the Court
clarified that the department is free to proceed under Section 73, which
deals with cases not involving fraud or suppression, provided limitation
and other conditions are met.
The writ petitions were
allowed without costs.
Conclusion
This judgment is a major
relief for taxpayers who often face mechanical and template-based Section 74
notices from the GST department. The High Court has sent a strong message that:
- Section 74 is an exceptional power
and cannot be misused.
- Officers must allege fraud, wilful
misstatement, or suppression with proper evidence.
- If these allegations are missing, the
proceedings are completely illegal.
- Courts will not permit extended
limitation unless statutory conditions are fulfilled.
- Remand is not permitted when
jurisdiction is completely absent.
For businesses,
accountants, and GST practitioners, this judgment reinforces the importance of
examining the contents of Section 74 notices carefully. If the notice does not
mention fraud or suppression, the taxpayer has strong grounds to challenge it.
Disclaimer: Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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