Section 74 GST SCN That Only States Figures Without Allegations of Fraud/Suppression: Supreme Court Grants Stay

Introduction

The Supreme Court of India has intervened in a GST dispute, granting an interim stay on further proceedings arising from a GST Show Cause Notice (SCN) issued under Section 74 of the CGST Act, 2017 because the notice only contained numerical figures and did not set out specific allegations of fraud, wilful misstatement, or suppression of facts — the essential foundation for invoking Section 74.

This decision clarifies that mere tabulation of figures without factual narrative is prima facie defective and unsustainable for the purposes of extended limitation and penalty under Section 74.

What is Section 74 of the CGST Act?

Section 74 deals with cases where:

Tax has not been paid or has been short paid,
Input Tax Credit (ITC) has been wrongly availed or utilised,

“by reason of fraud, wilful misstatement or suppression of facts to evade tax.”

It also carries extended limitation, 100% penalty exposure, and requires a speaking SCN that articulates how the taxpayer’s conduct amounts to fraud or suppression.

Background – GR Infra Projects Limited v. State of Madhya Pradesh

Case Title: GR Infra Projects Limited, Ratlam vs. State of Madhya Pradesh & Ors.
SLP(C) No. 33594/2025
Order Date: 21.11.2025
Bench: Hon’ble Justices J.B. Pardiwala & K.V. Viswanathan
Court: Supreme Court of India

Facts in Brief

The GST department issued an SCN dated 13.06.2025 under Section 74 demanding approx ₹1.52 crore for FY 2018–19.
The SCN included only figures relating to mismatches, ineligible ITC, and cancelled vendors.
It did not contain any factual narrative explaining how these facts constituted fraud, wilful misstatement or suppression to evade tax.

Lower Court History

The taxpayer challenged the SCN before the Madhya Pradesh High Court, arguing it was non-speaking and mechanically invoked Section 74 instead of Section 73.
MP High Court declined to interfere at the SCN stage, directing the taxpayer to reply and contest the issues before the adjudicating authority.

Supreme Court Intervention

On Special Leave Petition (SLP), the Supreme Court took the following interim steps:

🧾 Exact Operational Words from SC:
“Except figures, there is nothing else stated in the SCN explaining why fraud, wilful misstatement or suppression is alleged; prima facie the petitioner seems justified in saying that the notice lacks material particulars.”
The Court stayed all further proceedings arising out of the impugned SCN, issued notice to the department returnable in four weeks, and permitted dasti service.

The Court’s concern: a Section 74 SCN must contain foundational facts that show how the alleged act amounts to fraud or suppression — not just numbers.

Why This Ruling Matters

✔ Section 74 is a penal provision with serious consequences; such provisions must be invoked only when the SCN gives a meaningful opportunity to reply.
✔ Mere figures (tax/interest/penalty amounts) without factual context does not satisfy requirements of fraud/suppression.
✔ SCNs under Section 74 must be reasoned and speaking — mentioning not just numbers, but also the act, omission, intent and foundation of allegations.
✔ Internal investigation reports cannot cure defects unless they are incorporated into the SCN itself.

Key Legal Principles on Section 74 SCNs

🔹 Section 74 is distinct from Section 73; it deals with cases involving fraud, misrepresentation or suppression, not mere discrepancies.
🔹 A Section 74 SCN must:

Clearly articulate the facts and circumstances involving alleged fraud/suppression
Explain the nexus between those facts and the alleged evasion of tax
State why Section 74 (not Section 73) is invoked
🔹 Lack of such pleaded facts makes the SCN prima facie unsustainable and liable to be stayed or quashed.

Practical Implications for Taxpayers and Authorities

For Tax Officers

Avoid issuing template SCNs with only figures.
Include narrative on fraud/suppression with facts and the basis for inference.
Link alleged discrepancies to the taxpayer’s conduct with supporting material.

For Taxpayers

A Section 74 SCN that lists only figures may be challenged even at SCN stage.
Not necessary to wait for adjudication before court intervention if the SCN is jurisdictionally defective.
Grounds for challenge include:
- Non-speaking SCN
- Absence of foundational facts on fraud/suppression
- Wrong invocation of Section 74 instead of Section 73

FAQ – Frequently Asked Questions

1. What is a Section 74 SCN?

A Show Cause Notice under Section 74 CGST Act is issued when tax short payment or wrong ITC is alleged to have occurred by reason of fraud, wilful misstatement or suppression of facts.

2. Why is Section 74 different from Section 73?

Section 74 involves fraud/suppression with extended limitations and heavier penalties, while Section 73 deals with ordinary tax demands without those elements.

3. Can an SCN that only has figures be valid?

No. A valid Section 74 SCN must contain material particulars explaining how those figures arose from fraud/suppression.

4. What did the Supreme Court hold in GR Infra?

It held that where an SCN contains only figures and no factual narrative on fraud or suppression, it is prima facie defective and stayed further proceedings.

5. Does the order quash the SCN permanently?

No. The Supreme Court’s order is an interim stay pending final hearing.

6. Why is a speaking SCN important?

Because it enables the taxpayer to respond to specific allegations with material and arguments, preserving fairness.

7. Can the department cure the defect?

Yes, by issuing a fresh SCN with detailed allegations and facts supporting fraud/suppression.

8. Does this apply to all SCNs under Section 74?

Yes — threshold requirement for pleading facts applies to all Section 74 notices.

9. Can this order be cited in appeal or writ?

Yes, this interim stay gives a strong precedent to challenge vague Section 74 SCNs.

10. What if the SCN mentions an internal report but not details?

Mentioning internal reports without reproducing relevant factual material in the SCN itself is insufficient.

11. Does this affect extended limitation under Section 74?

Yes — extended limitation applies only if fraud/suppression is properly pleaded.

12. Does the SCN need dates and specific acts?

Yes. SCNs must narrate events, dates, omissions, and how they constitute fraud/suppression.

13. Can a taxpayer file writ at SCN stage?

Yes, when the SCN is jurisdictionally defective on its face.

14. Does this judgment restrict the department from issuing Section 74 SCNs?

No, but it ensures that only well-founded SCNs with particularised facts can be sustained.

15. How should taxpayers reply to such SCNs?

Taxpayers should demand specific factual allegations before responding on merits.

Conclusion

The Supreme Court’s order in GR Infra Projects Limited vs State of Madhya Pradesh sends a clear message that Section 74 SCNs must be reasoned and fact-based. A notice that only states figures without alleging why those figures arise from fraud/suppression is prima facie unsustainable and can be stayed even before adjudication begins.

This provides a powerful ground for taxpayers to challenge vague and template-style Section 74 notices.

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