• Dated 01^st December, 2025

Extended limitation under Section 74 cannot apply without specific allegations of fraud or suppression

Brief Facts:

A surprise inspection was conducted at the assessee's premises under Section 67 of the TNGST Act. During the inspection, the department identified several issues in the assessee's records, and these were later listed as nine specific defects in the show cause notices issued by the authorities. The assessee, however, did not submit any reply or clarification to these notices. Because of this non response, the department proceeded to pass orders under Section 74, demanding tax along with interest and penalty on the basis of the alleged defects. Feeling aggrieved by these orders, the assessee approached the Madras High Court and challenged the validity of the proceedings.

Assessee's Contention:

The assessee submitted that the proceedings under Section 74 were without jurisdiction since neither the show cause notices nor the orders contained any allegation of fraud, wilful misstatement or suppression with intent to evade tax. As these elements are mandatory for invoking the extended limitation period, the orders were invalid and liable to be quashed.

Department's Contention:

The Department argued that the assessee had an alternative remedy of appeal which it failed to avail. It was contended that the conduct of the assessee justified initiation under Section 74 and that the notices and orders were validly issued.

Decision:

The Madras High Court held that the extended limitation under Section 74 can be invoked only when the non-payment of tax is by reason of fraud, wilful misstatement or suppression of facts with intent to evade tax. In this case, the show cause notices did not contain any such allegation or supporting material. The Court also observed that the use of the word "determined" in the notices indicated pre determination, violating principles of natural justice. As the jurisdictional requirements were absent, the show cause notices and orders were quashed, with liberty to the department to proceed under normal provisions such as Section 73, if applicable.

BTA's Comment:

This judgment reinforces the settled principle that Section 74 is an exceptional provision and cannot be invoked mechanically. The presence of fraud/suppression is a jurisdictional requirement, and any SCN lacking such allegations is void ab initio. The decision also aligns with CBIC Circular No. 5/2023-GST, which cautions against routine use of Section 74. Practically, this ruling strengthens defenses in audits where Section 74 is invoked without specific, evidenced allegations, and supports challenging such actions as being without jurisdiction.

Neeyamo enterprise solutions pvt. Ltd. vs commercial tax officer (state tax) (intelligence), Madurai
W.P. (MD) Nos. 30453 to 30458 of 2024 and W.M.P. (MD) Nos. 25593, 25594, 25597, 25599, 25595, 25598, 25602, 25604, 25603, 25606, 25600 & 25601 of 2024 & Othrs, decided on 11-11-2025

Author: Mohammed Rayyan

Edited by: Saket Shaw