GST Demand Order for FY 2017-18 Quashed as Passed Beyond Mandated Five-Year Limitation Period

GST Demand Order for FY 2017-18 Quashed as Passed Beyond Mandated Five-Year Limitation Period

Issue

• Whether a tax demand order passed under Section 74 of the CGST/DGST Act for the financial year 2017-18 is legally sustainable if it is issued after the expiration of the statutory five-year limitation period calculated from the extended due date of the annual return.

Facts

• The petitioner was a registered taxable person under the GST framework, operating a sole proprietorship concern.

• The tax department issued a Show Cause Notice (SCN) to the petitioner, alleging wrongful availment of Input Tax Credit (ITC) and a failure to respond to an initial scrutiny notice.

• The Proper Officer subsequently passed an Order-in-Original dated December 30, 2025, confirming the tax demand, and issued a corresponding recovery notice in Form GST DRC-07.

• The statutory due date for filing the annual return for the financial year 2017-18 had been officially extended by the government to February 5, 2020.

• The petitioner invoked the writ jurisdiction of the High Court to challenge the demand order solely on the grounds of limitation.

Decision

• Held, yes: Section 74(10) of the Act strictly mandates that the final adjudication order must be passed within an absolute outer limit of five years from the due date for furnishing the annual return for the relevant financial year.

• Held, yes: Given that the extended due date for the FY 2017-18 annual return was February 5, 2020, the statutory five-year window for the tax authorities to pass a valid order expired on February 5, 2025.

• Held, yes: The impugned Order-in-Original dated December 30, 2025, was clearly issued after the expiration of this statutory timeframe.

• Held, yes: The respondent authorities fairly conceded to the factual breach of the five-year limitation period during the court proceedings.

• Held, yes: Because the mandate of limitation is a jurisdictional checkpoint that cannot be relaxed or extended by the tax administration, the time-barred Order-in-Original and the connected Form GST DRC-07 are completely quashed.

Key Takeaways

• Absolute Temporal Bar: The five-year limitation window under Section 74(10) for passing orders involving fraud, willful misstatement, or suppression of facts acts as an absolute jurisdictional boundary. Once this timeline expires, the tax administration loses its legal mandate to issue a demand.

• Extended Due Dates Control Limitation: When calculating statutory limitations, the timeline begins precisely from the actual legally extended due date of the annual return (e.g., February 5, 2020, for FY 2017-18), rather than the original standard date.

• Strict Adherence required from Revenue: Departmental delays cannot be condoned if an order bypasses the legislative deadline. A clear breach of the limitation period invalidates the entire assessment process, offering a structural defense to the taxpayer regardless of the merits of the tax evasion charge.