Composite GST Notices: The Case for Severability Over Invalidation

Composite GST Notices: The Case for Severability Over Invalidation

A larger bench of the Supreme Court is set to resolve one of the more consequential procedural disputes in GST litigation: whether a single show-cause notice spanning multiple financial years is permissible under the CGST Act. The split between the Goa High Court in Milroc Hospitality and the Delhi High Court in Mathur Polymers has left practitioners and adjudicators without a settled answer. The Court’s resolution of this question will shape how tax exposure is assessed, contested and defended for years to come.

This piece argues that the answer does not lie in invalidating composite notices wholesale & neither in permitting them without structural discipline. The statute, read carefully, already supplies the framework. The Court just needs to only apply it.

The Statutory Architecture

Sections 73 and 74 of the CGST Act form the procedural backbone of tax recovery. Sub-section (1) authorises notices for non-payment, short payment, and wrongful ITC claims. Crucially, sub-sections (3) and (4) permit extension of a notice to cover periods beyond the one originally specified, provided the grounds remain the same. The legislature, in enacting these provisions, appears to have recognised that tax defaults, particularly ITC irregularities, these often follow a pattern that does not respect annual boundaries.

Sub-section (10), however, operates as a counterweight. It anchors the limitation period for adjudication to the relevant financial year, calculated from the due date of the annual return for that year. The scheme, read as a whole, draws a clear distinction: the scope of inquiry may travel across periods, but adjudication and liability must be determined within year-specific statutory limits.

This internal balance is not accidental. It reflects a deliberate legislative design, breadth in investigation & discipline in adjudication.

The Judicial Conflict

The Goa High Court in Milroc Hospitality took the position that each financial year constitutes a distinct unit of assessment under the CGST Act, leaving no room for composite notices. The concern animating this view is sound: limitation periods are year-specific, defences may differ across years, and aggregation can obscure time-barred demands within a composite notice, making precise rebuttal difficult for the taxpayer.

The Delhi High Court in Mathur Polymers reached a different conclusion. It held that sub-section (10) is a limitation provision governing the outer boundary of the final order & not a restriction on the structural form of the notice. On this reading, a composite SCN is permissible where the underlying issue spans multiple periods, so long as adjudication is conducted year-wise and limitation is applied independently for each financial year.

The Karnataka High Court in Veremax Technologie Services Ltd. v. Assistant Commissioner of Central Tax (2024) sided closer to the Milroc line, quashing a consolidated SCN covering FY 2017-18 to 2020-21, relying on the Supreme Court’s earlier ruling in State of Jammu & Kashmir v. Caltex (India) Ltd. (AIR 1966 SC 1350). The Madras High Court, in Titan Company Ltd. v. Joint Commissioner of GST and subsequently in R A and Co. v. Additional Commissioner of Central Taxes (2025), has also held that bunching of SCNs for multiple financial years is impermissible under the GST law.

The result is a fragmented landscape, since the same composite notice may be legally defensible in one jurisdiction and fatally flawed in another.

Why Wholesale Invalidation is Not the Answer

The proposition that composite notices must be declared universally invalid is not supported by the statutory text and, if adopted, would produce consequences disproportionate to any procedural benefit.

Sub-sections (3) and (4) of Sections 73 and 74 explicitly contemplate extension of a notice to other periods, conditional on the grounds remaining unchanged. A categorical prohibition on composite notices cannot be reconciled with a provision that expressly allows notice periods to be expanded. Where the legislature intends a prohibition, it says so plainly. Where it provides a conditional framework for expansion, reading in a categorical bar amounts to an impermissible judicial addition.

Furthermore, a blanket invalidity rule would collapse pending litigation at scale, not because the underlying tax demand is illegitimate, but solely because of the form in which the notice was issued. Decades of jurisprudence on procedural law have drawn a careful line between forms that cause prejudice and those that are merely irregular. Composite notices, issued in good faith and responded to on merits, do not inherently cause prejudice. Prejudice, where claimed, must be demonstrated & not just presumed.

The Doctrine of Severability: The Right Instrument

The more principled path is offered by the doctrine of severability which is a foundational principle of Indian statutory interpretation. The Supreme Court articulated the doctrine authoritatively in R.M.D. Chamarbaugwalla v. Union of India (AIR 1957 SC 628), holding that where a statute is in part void, it may still be enforced as regards the rest, if that part is severable from what is invalid. The critical test, as the Court held, is legislative intent and whether what remains after severance constitutes a complete and workable code.

Transposed to the present context, the principle operates with considerable precision. A composite SCN may be lawfully issued where the grounds are common across years. Where one or more financial years covered by the notice have crossed the limitation threshold prescribed under sub-section (10), the demand for those years must be severed and excluded. The notice, as a whole, survives but only to the extent of the valid, within-limitation years.

This approach draws direct support from the Supreme Court’s observation in State of Jammu & Kashmir v. Caltex (India) Ltd. (AIR 1966 SC 1350) which was relied upon by the Karnataka High Court that where an assessment encompasses different assessment years, each year “can be easily split up and dissected and the items can be separated and taxed for different periods.” The Court was, in effect, endorsing the very principle now being argued: that multi-year proceedings are not inherently invalid, but must be capable of independent year-wise resolution.

What Severability Demands in Practice

Adopting the severability framework imposes three concrete obligations on adjudicating authorities, which the Supreme Court should make explicit in its ruling:

First, the requirement of “sameness of grounds” under sub-sections (3) and (4) must be applied with rigour. A shared legal category such as “ITC claim” is insufficient. There must be genuine continuity in the underlying transaction pattern or legal issue across the periods covered. Loose similarity will not suffice. Without this discipline, the sameness-of-grounds condition becomes meaningless.

Second, limitation must be assessed and applied independently for each financial year. No composite notice can be used to revive a time-barred demand, to postpone a limitation clock, or to merge distinct years into an undifferentiated aggregate. Where any year falls outside the limitation window as at the date of the notice, the demand for that year must be severed and excluded from adjudication.

Third, the adjudication order must reflect this segmentation in form and substance. The adjudicating authority must record year-wise findings, undertake separate computations for each financial year, and independently assess limitation for each period. An omnibus order lumping all years together is not merely a procedural lapse but it strikes at the validity of the demand itself.

The ITC Dimension

The stakes of this question are elevated significantly in the context of ITC disputes, which make up a substantial share of pending GST litigation. ITC irregularities, by their nature, tend to manifest as patterns across multiple return periods. A vendor who has consistently issued defective invoices, or a recipient who has repeatedly claimed credit against non-existent supply, will present a factual record that spans several financial years.

A rigid year-by-year approach, requiring entirely separate notices, investigations and adjudications for each FY, would impose a significant and arguably disproportionate burden on the revenue administration that too without corresponding benefit to the taxpayer, who is defending the same underlying allegation. An unstructured multi-year composite notice, on the other hand, risks conflating distinct liabilities and weakening the precision of both allegation and defence.

The law must accommodate continuity without sacrificing clarity. Severability, correctly applied, achieves precisely this balance.

A Note on the Prejudice Test

A recurring objection to composite notices is that they prejudice the taxpayer’s ability to mount a year-specific defence, particularly when the notice is issued close to the limitation deadline for the earliest year. This is a genuine concern and deserves a genuine answer.

The appropriate remedy for demonstrable prejudice is not the wholesale quashing of a multi-year notice. It is the grant of adequate time and opportunity to respond year-wise, the severance of time-barred years from the scope of adjudication, and a direction to the adjudicating authority to record its findings with year-specific granularity. These remedies address the actual harm without sacrificing the lawful years of demand.

Where a taxpayer has responded to the notice on its merits without raising a contemporaneous objection to its composite form, it will generally be difficult to sustain a prejudice argument. Response to a notice constitutes, at minimum, a factual acknowledgement of its contents.

What the Supreme Court Should Settle

The larger bench has an opportunity to provide a framework that is both legally grounded and administratively workable. The ruling should clarify four specific propositions:

1. The CGST Act does not prohibit composite SCNs where the grounds are genuinely common across financial years. The language of sub-sections (3) and (4) forecloses a categorical prohibition.
2. Composite notices are subject to the doctrine of severability. Time-barred years must be excluded from adjudication; the notice survives for the balance.
3. Sameness of grounds must be assessed with substance, not merely form. Broad thematic similarity is insufficient; there must be factual or legal continuity in the specific allegation.
4. Adjudication orders on composite notices must contain independent year-wise findings, computations and limitation assessments. Failure to do so is a jurisdictional error, not merely a procedural irregularity.

This framework is not a concession to administrative convenience. It is the framework the statute already prescribes, one that permits breadth in inquiry while insisting on discipline in adjudication. The distinction between the two is, as has been observed, not merely interpretive. It is foundational.