When Numbers Are Not Enough: Supreme Court Flags Section 74 GST SCNs Without Facts as Prima Facie Unsustainable

 Case: GR Infra Projects Limited Ratlam v. State of Madhya Pradesh & Ors., Order dated 21.11.2025

By CA Surekha S Ahuja

Introduction: Section 74 Is Not Routine – It Is Penal and Serious

Section 74 of the CGST/SGST Act represents the sharpest instrument in the GST adjudication toolkit. It is invoked only when the department alleges:

• Fraud

• Wilful misstatement

• Wilful suppression of facts

• Intent to evade tax

These are intention-based penal charges. Unlike normal tax adjustments, Section 74 attracts:

• Extended limitation of five years

• Penalties equal to the tax evaded

• Potential quasi-criminal implications

• Reversal of input tax credits

Because of this, the notice itself must be speaking, fact-based, and reasoned. Mere numerical discrepancies or computations cannot substitute for allegations of fraud or suppression.

The Supreme Court’s recent order in GR Infra Projects Limited has clarified, definitively, that a Section 74 SCN without foundational facts is prima facie unsustainable.

Background: The Defective SCN

The petitioner received a Section 74 SCN which:

• Contained only numerical tax differentials

• Did not disclose:

  • The acts constituting alleged suppression or misstatement

  • The documents relied upon

  • The reasoning for invoking the extended limitation period

  • Any basis for alleging intent to evade

The Madhya Pradesh High Court refused to quash the notice, requiring the assessee to respond to the Department. The petitioner moved the Supreme Court via SLP (C) No. 33594/2025.

The Core Issue

Whether a Section 74 SCN containing only tax figures, without allegations, factual bases, or material particulars, can create jurisdiction or is void ab initio.

Supreme Court’s Prima Facie Findings

The Supreme Court held:

• The assessee had “no idea” why fraud, wilful misstatement, or suppression was alleged.

• The SCN lacked foundational facts required under Section 74.

• Mere numerical discrepancies do not establish suppression or intent.

• The SCN failed to justify the extended limitation period.

Consequently:

• The Court issued notice to the Revenue (returnable in four weeks)

• Stayed all proceedings arising from the impugned SCN

• Highlighted that non-speaking, cryptic SCNs under Section 74 are prima facie unsustainable

While the Court did not decide the ultimate validity, its observations serve as a strong signal to taxpayers and authorities.

Legal Analysis: Why the Notice Fails

A. Section 74 Requires Specific Allegations

• Fraud, suppression, and wilful misstatement require active conduct and mens rea.

• Mere differences in tax figures cannot establish intention.

• Courts have consistently held this principle, including:

  • Pushpam Pharmaceuticals – suppression must be deliberate

  • Continental Foundation Joint Venture – intent must be proven

  • Oudh Sugar Mills – factual allegations cannot be inferred from numbers alone

B. Natural Justice Demands a Speaking Notice

• A taxpayer cannot respond meaningfully to a blank notice.

• Violation of audi alteram partem and Article 14 renders the SCN void.

C. Jurisdictional Defect Cannot Be Cured

• If the SCN lacks foundational facts, the authority has no jurisdiction to proceed.

• The defect cannot be remedied during adjudication.

D. Extended Limitation Period Requires Justification

• Section 74(1) permits 5-year limitation only when fraud or suppression is established.

• A mechanical invocation without factual explanation is illegal.

E. Numbers Cannot Substitute Narrative

• Section 74 is penal and intention-based.

• Numerical tables alone cannot trigger the provision.

Illustrative Comparison: Defective vs Proper SCN

A. Typical Defective SCN

• “Difference found in GSTR-1 vs GSTR-3B: ₹65,32,110”

• “Tax short paid; pay under Section 74”

• No acts, no allegations, no reasoning

B. Legally Sustainable SCN

• Specific invoice/transaction suppressed

• How concealment occurred

• Evidence relied upon

• Establishment of intent to evade

• Justification for invoking Section 74 instead of Section 73

• Annexures with detailed computations

Observation: Numbers are data, not allegations. A valid SCN must read like a charge-sheet, not a spreadsheet.

Practitioner’s 10-Point Validity Checklist

1. Are acts constituting suppression/fraud specifically described?

2. Are the foundational facts disclosed?

3. Are the documents relied upon identified/annexed?

4. Is intent (mens rea) specifically pleaded?

5. Is the extended limitation period justified with reasons?

6. Are quantifications linked to evidence?

7. Is the SCN internally consistent?

8. Does it distinguish between Section 73 and 74 applicability?

9. Can the assessee give an effective reply?

10. Is the SCN templated or mechanical?

If any of the first five fail → SCN is prima facie void.

Courtroom-Ready Defence Draft for Taxpayers

I. Preliminary Objection:

“The impugned SCN is cryptic, mechanical, and devoid of foundational facts. It merely presents figures without narrating acts constituting fraud, misstatement, or suppression. It is void ab initio.”

II. Section 74 Cannot Be Invoked Without Mens Rea:

“Section 74 is penal and intention-based. The SCN does not identify any transaction allegedly suppressed, nor establish intent. Invocation is arbitrary.”

III. Extended Period of Limitation Unjustified:

“Without factual narration, invocation of the extended period is legally unsustainable.”

IV. Reliance on Precedents:

Oryx Fisheries (SC), Mohinder Singh Gill (SC), Dharampal Satyapal (SC), GSP Power Ltd. (Allahabad HC) – Notices must be self-contained; defects cannot be cured during adjudication.

V. Relief Sought:

“Quash the SCN as void ab initio or stay proceedings until a valid, reasoned notice is issued.”

Key Takeaways for Taxpayers and Professionals

• Section 74 cannot be invoked mechanically; it requires fact-based allegations.

• Taxpayers now have a Supreme Court-tested defense shield.

• SCNs lacking particulars can be challenged on jurisdictional, constitutional, and procedural grounds.

• Compliance teams should vet SCNs for speaking, reasoned content before responding.

• Future GST litigation will focus on the quality of SCN as much as the alleged figures.

Conclusion

The GR Infra judgment reaffirms a simple yet powerful principle:

Numbers do not make allegations; allegations require facts, reasoning, and evidence.

A Section 74 SCN is a legal weapon and must be wielded with precision, reasoning, and fairness. Cryptic notices without material particulars collapse under their own insufficiency, protecting taxpayers from arbitrary action.

This judgment is a definitive guidepost for GST professionals, practitioners, and taxpayers seeking clarity on what constitutes a valid Section 74 show cause notice.