Section 74 SCN Lacking Foundational Facts and Specific Reasons Is Invalid and Liable to Be Quashed

By | September 22, 2026
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Section 74 SCN Lacking Foundational Facts and Specific Reasons Is Invalid and Liable to Be Quashed

Issue

Whether a show cause notice issued under Section 74 alleging fraudulent Input Tax Credit (ITC) availment without actual supply is legally sustainable when it merely tabulates tax amounts and reproduces statutory terms without disclosing foundational facts or supporting reasons.

Facts

  • Challenge to Notices: The petitioners filed writ petitions challenging show cause notices dated 16.10.2025 issued under Section 74 of the CGST/Chhattisgarh GST Act.
  • Allegation: The notices alleged fraudulent availment of Input Tax Credit (ITC) through fake invoices without actual supply of goods or services.
  • Defect in SCNs: The impugned notices merely tabulated tax amounts and mechanically asserted fraud, wilful misstatement, or suppression of facts without providing specific reasons or underlying material.
  • Assessee’s Contentions: The petitioners argued that foundational facts and reasons must be evident from the face of the notice, which were completely absent.
  • Revenue’s Defense: The State asserted that the notices sufficiently depicted the foundational facts necessary to invoke Section 74.

Decision

  • Insufficiency of Statutory Phrases: The High Court held that mere reproduction of statutory phrases like “fraud” or “wilful misstatement” without demonstrating application of mind is legally insufficient.
  • Requirement of Foundational Facts: To invoke extended proceedings under Section 74, the foundational facts and reasons leading to an inference of fraud or suppression must be clearly apparent from the notice itself.
  • Notices Quashed: Since the impugned notices lacked foundational facts and reasoning, the proceedings could not be sustained; the notices dated 16.10.2025 were quashed and the writ petitions were allowed in favour of the assessee.
  • Liberty Granted: The Department was granted liberty to issue fresh notices strictly in accordance with law, if so advised.

Key Takeaways

  • Foundational Facts Mandatory: A Section 74 SCN cannot rely on generic statutory language; it must disclose clear, objective, and specific foundational facts supporting allegations of fraud or suppression.
  • Application of Mind Required: Simply tabulating tax figures alongside boilerplate allegations does not meet the legal requirement of a valid show cause notice.
  • Fresh Action Permissible: Quashing an insufficient notice on procedural grounds does not bar revenue authorities from issuing a fresh, properly detailed notice within statutory limits.
HIGH COURT OF CHHATTISGARH
Hanumant Steel Traders
v.
Assistant Commissioner, State Goods and Services Tax
Rakesh Mohan Pandey, J.
WPT No. 11, 12 and 15 of 2026
SEPTEMBER  9, 2026
Palash Soni, Shiv Kumar Soni and Prashant Dansena, Advs. for the Petitioner. Ms. Anuradha Jain, Dy. G.A. for the Respondent.
ORDER
1. In this batch of writ petitions, petitioners have challenged the respective notices issued by the respondent under Section 74(9) of GST Act, 2017 dated 16.10.2025.
2. Mr. Palash Soni, learned counsel appearing for the petitioners submits that the issue involved in the present cases is no more res integra and the Hon’ble Supreme Court in the matter of Tata Steel Ltd. v. Union of India  (SC) held that the foundational facts which led to the inference arrived at of fraud/wilful misrepresentation/ suppression should be evident from the notice itself. He further submits that the impugned notices lack such foundational facts therefore the same deserve to be quashed. He prays to allow these writ petitions.
3. On the other hand, Ms. Anuradha Jain, learned State counsel submits that the respondent authority has issued the respective notices describing the amounts as the petitioner availed input tax credit by issuing fake invoices without actual supply of goods. She further submits that the authority concerned has appropriately depicted the foundational facts and petitioners have efficacious alternative remedy available in their favor to prefer respective appeals u/s 107 of GST Act.
4. I have heard learned counsel for the parties and perused the material available on record.
5. A careful perusal of the impugned notices would reveal that the authority concerned failed to assign sufficient reasons while issuing the respective notices under Section 74(9) of GST Act, 2017. Hon’ble Supreme Court while dealing with the similar issue in Tata Steels Ltd. (supra) held as under :-
14. It is not mere lip service to the provisions that is intended when an extended limitation period is provided for recovering an excess benefit availed, short payment or excess refund, from the assessee, especially when the allegation is of fraud/ wilful misrepresentation/ suppression. The foundational facts which led to the inference arrived at of fraud/wilful misrepresentation/ suppression should be evident from the notice itself. The mere employment of such words will not indicate an application of mind, upon which alone the satisfaction can be arrived at. The words are not to be mechanically recited in the notice to enable recovery outside the normal limitation provided under the statute.
6. In view of the aforesaid discussion and the established legal position, respective notices issued by the respondent under Section 74(9) of GST Act, 2017 dated 16.10.2025 are hereby quashed.
7. Accordingly, these writ petitions are allowed. However, respondent authority would be at liberty to issue fresh notices strictly in accordance with law, if so advised.