The limitation period is often the most critical issue in GST demand proceedings. If the show cause notice or the order is time-barred, the entire proceeding is invalid. Understanding the limitation rules under Sections 73, 74, and 74A is essential for every taxpayer facing a GST demand.
This article explains the limitation periods, the triggering events, and recent judicial developments.
Limitation Under Section 73
Section 73 applies to demands without fraud, wilful misstatement, or suppression of facts. The limitation period is:
- Show cause notice: Must be issued at least three months before the time limit for passing the order.
- Order: Must be passed within three years from the due date for filing the annual return for the relevant financial year.
Limitation Under Section 74
Section 74 applies to demands involving fraud, wilful misstatement, or suppression of facts. The limitation period is:
- Show cause notice: Must be issued at least six months before the time limit for passing the order.
- Order: Must be passed within five years from the due date for filing the annual return for the relevant financial year.
The New Section 74A
From FY 2024-25 onwards, Section 74A replaces Sections 73 and 74 for tax periods beginning on or after 1st April 2024. Section 74A consolidates the demand provisions while retaining the distinction between fraud and non-fraud cases for penalty and limitation purposes.
The Triggering Event
The limitation period runs from the due date for filing the annual return for the relevant financial year. For FY 2017-18, the due date was 31st December 2018. For FY 2018-19, the due date was 31st December 2019, and so on.
Recent Judicial Developments
The Supreme Court has ruled that the five-year limitation under Section 74 must be strictly construed. In the GR Infra and Tata Steel cases, the court held that the limitation period cannot be extended by the department without a valid legal basis. The court also held that "suppression" must have a factual basis — a mere allegation is not sufficient.
The Karnataka High Court has quashed a consolidated show cause notice clubbing multiple financial years, holding that such a notice is illegal and arbitrary.
Practical Implications
- Verify the limitation period for every demand notice received.
- Check whether the show cause notice was issued within the prescribed time.
- Check whether the order was passed within the prescribed time.
- Challenge time-barred notices and orders before the appellate authorities.
- Maintain records of annual return filing dates for each financial year.
Conclusion
Limitation is a substantive right, not a mere procedural formality. Taxpayers must verify whether demand notices are issued within the prescribed time and challenge any time-barred proceedings. Recent Supreme Court rulings have reinforced the importance of strict adherence to limitation periods.
At Anuj Desai & Associates, we provide expert representation services for GST demand notices, including limitation-based challenges. Our team can help you assess the validity of any notice and protect your rights.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.