The Hon’ble Karnataka High Court in the case of M/s. NCS Pearson Inc. v. Union of India & Ors. [Writ Petition No. 7635 OF 2024, order dated July 16, 2025] held that the show cause notice issued under Section 74 of the CGST Act, 2017, alleging wilful suppression to invoke an extended limitation period, was illegal and without jurisdiction as the Revenue had full knowledge of all facts from the AAR and AAAR proceedings, and the key jurisdictional fact of wilful suppression was not satisfied.
Facts:
NCS Pearson Inc. (“the Petitioner”), a Minnesota-based corporation engaged in administering GMAT tests in India, entered into contracts for human scoring services and sought advance rulings on GST classification of its tests under OIDAR services post GST regime.
The Union of India and other authorities (“the Respondents”) issued a show cause notice under Section 74 CGST Act, alleging wilful suppression of facts and GST evasion for the period July 2017 to June 2021 regarding Type-III tests.
The Petitioner contended that it was compliant, had filed GST returns, and the Revenue had full knowledge of the transactions through participation in Authority for Advance Rulings (AAR) and Appellate Authority for Advance Rulings (AAAR) proceedings, where the classification issue was contested and pending before the Division Bench.
The Respondent contended that the Petitioner intentionally failed to declare correct GST under Section 74 and relied on Supreme Court precedents to validate issuing the extended period SCN.
The Petitioner’s grievance was that the SCN was illegal, arbitrary, without jurisdiction due to the absence of the jurisdictional fact of wilful suppression and sought quashing of the SCN and related notifications by writ petition under Articles 226 and 227 of the Constitution.
Issue:
Whether the show cause notice issued under Section 74 CGST Act alleging wilful suppression for invoking the extended limitation period can be sustained when the Revenue had full knowledge of the relevant facts and when the classification issue remained sub judice before the High Court?
Held:
The Hon’ble Karnataka High Court in Writ Petition No. 7635 OF 2024 held as under:
- Observed that, the sine qua non for invoking extended period under Section 74 is wilful suppression defined as non-declaration or failure to furnish information with intent to evade tax, which was not established here.
- Noted that, the Revenue was fully aware of the nature of transactions from AAR and AAAR proceedings and classification issue was pending before the Court with interim protection to the Petitioner.
- Held that, mere omission to pay tax or discrepancies in returns do not amount to wilful suppression or misstatement without mens rea and therefore quashed the show cause notice dated February 12, 2024 issued under Section 74, stating it was illegal, arbitrary, and without jurisdiction and violated Article 265 of the Constitution.
Our Comments:
The Court emphasized the fundamental principle that invocation of the extended limitation period under Section 74 CGST requires clear establishment of wilful suppression with intent to evade tax, aligning with the Apex Court’s rulings such as Pushpam Pharmaceuticals Co. v. CCE [1995 3 SCC 462] and in the case of Cosmic Dye Chemical v. Collector [1995 6 SCC 117]. The judgment clarified that non-declaration or mistaken classification during pending advanced ruling proceedings where the Revenue had full knowledge does not constitute suppression. This ruling is also significant in reiterating that Revenue cannot invoke stringent provisions arbitrarily absent foundational jurisdictional facts. The court’s reliance on jurisdictional fact principles in Carona Ltd. v. Parvathy Swaminathan Sons [2007 (8) SCC 559] which calls for strict controls against excess tax authority reach.
The decision aligns with and applies settled principles that extended limitation applies only upon fraud, collusion, or deliberate misinformation, not mere errors or interpretative disputes pending judicial resolution. It diverges from any expansive reading of extended limitation where Revenue claims knowledge alone justifies action, reinforcing requirement of positive mens rea.
Relevant Provisions:
Section 74 of the Central Goods and Services Tax Act, 2017:
“Determination of tax pertaining to the period up to Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts.-
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.
(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order…”
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