Fraud Across Financial Years: The Case for Bunched Show Cause Notices Under the CGST Act
Summary: This article analyzes the controversial issue whether a single consolidated show cause notice (SCN) can be issued for more than one financial year under the provisions of Sections 73 and 74 of the Central Goods and Services Tax (CGST) Act, 2017, specifically for fraudulent availment of Input Tax Credit (ITC) benefits. Delhi High Court, Jammu & Kashmir High Court, Allahabad High Court and Kerala High Court have, in general, allowed such bunching because the words “period” are used instead of “financial year” in the statute. However, the Bombay High Court and the Madras High Court have taken the opposite view, which is that each financial year is a separate and self-contained period of assessment. The Kolkata (Calcutta) High Court, in its turn, has accepted that in cases where the fraudulent availment of ITC constitutes a chain of transactions that may last for several years, bunching might be a must. The Supreme Court also has a pending sub-judice case on the question. In the author’s opinion, the Kolkata High Court’s reasoning is sounder, as fraudulent ITC schemes are essentially ongoing transactions, and cannot be sensibly broken down into the individual financial years.
- Introduction
- The Statutory Scheme: “Period” Versus “Financial Year”
- The View Favouring Bunching — Delhi High Court and Other Courts
- The Contrary View: Kolkata High Court
- The Contrary View: Bombay High Court
- The Contrary View — Madras High Court
- The Question Pending Before the Supreme Court
- Conclusion
Introduction
One of the most litigated issues in the present-day GST jurisprudence is whether or not the tax department can issue one composite show cause notice in a single year for multiple assessment years or it has to issue a separate notice each year. The controversy is especially relevant in light of Section 74 of the CGST Act, 2017[1] which addresses the non-payment or short payment or availment of Input Tax Credit (ITC) due to fraud, wilful misstatement or suppression of facts. Revenue authorities often send a one-off notice which spans multiple financial years for the fraud, often as a result of the relevant transactions being a series of seemingly innocuous transactions with less-than-reputable suppliers, or even non-existent suppliers. However, Assessees argue that such “bunching” violates the year-wise scheme of assessment and limitation provided under CGST Act. Different views have been expressed by High Courts and the case is now before the Supreme Court.
The Statutory Scheme: “Period” Versus “Financial Year”
The expression “for such periods” is used in Sections 73(3) and 74(3) and the expression “for any period” is used in Sections 73(4) and 74(4). In contrast, those two provisions that set the limitation for the passing of an adjudication order, namely Sections 73(10) and 74(10),[2] clearly refer to the due date of the annual return “for the financial year”. This distinction is emphasised by courts favoring bunching, which reason that the Legislature intentionally did not limit the authority to issue an order in a single financial year even though the limitation date for issuing orders is one-year, year-wise. Those courts that do not favour bunching, however, take a different view as to the “financial year” being the basic, non-negotiable assessment period, and the language of “period” as being incidental rather than a licence to bunch years together.
The View Favouring Bunching — Delhi High Court and Other Courts
The Delhi High Court has always been pro-bunching issue in fraud cases including the one taken in Ambika Traders (Through Proprietor Gaurav Gupta) v. Additional Commissioner, Adjudication, DGGSTI[3]. The Court noted that the word “for any period” and “for such periods” in Sections 74(3) and 74(4) as compared to “financial year” in Sections 73(10) and 74(10) was an indication that the Legislature was “conscious of the fact that insofar as wrongfully availed ITC is concerned, the notice can relate to a period and need not to be for a specific financial year”. The Court also noted that there would be nothing wrong with a single question of availment by the ITC in one year and not establishing any pattern of fraudulent utilisation. It was this reasoning that has been followed in Mathur Polymers v. Union of India[4], Raghunath Enterprises v. Additional Commissioner, CGST, Delhi North[5] and Rishi Enterprises v. Additional Commissioner, Central Tax, Delhi North[6]. This has been reiterated by the Jammu & Kashmir High Court in which it has held that there is no bar on a composite notice even if the same contains year-wise quantification, specific allegations and each period falls within limitation in Gee Enn & Sons v. Union of India[7]. In S.A. Aromatics (P) Ltd. v. Union of India[8], the Allahabad High Court said that a single-tax period restriction would bring an “artificial restriction” which is not there in the statute. In the same vein, the Kerala High Court, in X.L. Interiors v. Commissioner[9], stated that there is no prejudice if the bunching occurs as the assessee can still plead year-wise in its reply.
The Contrary View: Kolkata High Court
A Single Judge of the Calcutta High Court (Aniruddha Roy, J.) in the case of SBI v. Union of India, 2026 SCC OnLine Cal 7539[10] (decided 30 June 2026), quashed a composite show cause notice issued for the financial years 2018-19 to 2023-24 and the attached order which imposed a tax penalty of ₹10.97 crore, on the ground that each financial year is a separate unit for the tax determination under Section 74 and that the limitation period to determine each year is independent of another year and the High Court found that for three out of the six years under the notice, the limitation period would have expired by the date of issuance of the notice making it not only irregular but also time-barred to that extent. The revenue’s reliance on the Delhi High Court’s Mathur Polymers judgement was set against the Bench, but did not sway the minds of the Court as taxing statutes must be strictly construed and that the clubbing of years together was beyond the scope of the statute and outwith the jurisdiction of the Court.
The Contrary View: Bombay High Court
The Bombay High Court has taken a far more different stance. In its Goa Bench decision of Milroc Good Earth Developers v. Union of India[11], followed by Rite Water Solutions (India) Ltd. v. Joint Commissioner, Cgst And Central[12], Jagruteshwar Metals Pvt. Ltd. v. Union of India[13], Speedways Logistics Pvt. Ltd. v. Union of India[14], and Paras Stone Industries v. Union of India[15], the Court has consistently struck down consolidated notices issued for multiple financial years even in the context of fraudulent ITC cases on the ground that the taxable event in the CGST Act must be determined on a year-wise basis.In its Goa Bench decision of Milroc Good Earth Developers v. Union of India, the Court had struck down consolidated notices issued for multiple financial years, even in the case of fraudulent ITCs, on the ground that the taxable event in the CGST Act must be determined on a year-wise basis. Faced with a clash with the Delhi High Court interpretation and within the coordinate bench the Bombay High Court has referred the issue to a larger bench in Rollmet LLP v. Union of India[16].
The Contrary View — Madras High Court
The Madras High Court has taken the stand of the Calcutta High Court and Bombay High Court. In Titan Company Ltd. v. Joint Commissioner of GST & Central Excise[17], the Court ruled that Composite SEN and assessment order for multiple financial years is impugned as it is not a quasi-jurisdictional condition as per Sections 73 and 74 of the CGST Act, which presumes the determination of taxable liability for each financial year separately. It has reasoned that bunching and severely impedes the assessee’s ability to enjoy benefits, which it has averred are available only “year-wise” like waiver of penalty and amnesty schemes, and has repeated this in a later order. This is in complete contrast to the Delhi, Jammu & Kashmir and Allahabad, Kerala High Courts, which have construed the “period” language in Sections 73(3)/74(3) and 73(4)/74(4) to allow and, in the case of fraud, perhaps even require, a consolidated notice.
The Question Pending Before the Supreme Court
In the Ambika Traders/Mathur Polymers line, the Supreme Court has been called upon more than once, but has yet to rule, however, the reasoning of the Delhi High Court in the latter case was not overturned but left undisturbed where it was not pressed as a special leave petition against Ambika Traders was rejected as not pressed and special leave petition against Mathur Polymers v. Union of India was rejected without assessing the correctness of the bunching principle[18]. However, the question is directly sub-judice before the Supreme Court in the appeal of Jammu & Kashmir High Court’s Gee Enn & Sons decision before the Supreme Court which is adjourned and re-listed in MS Nee Geen and Sons v. Union of India & Ors[19]. With the Bombay High Court’s own mention of a larger bench and the direct clash between the two lines of powers of the Bombay and Madras High Courts, a definite Supreme Court verdict will be forthcoming soon.
Conclusion
The differences between the Bombay, Calcutta and Madras High Courts on the one hand, and the Delhi, Allahabad and J&K High Court on the other, hinge on their interpretation of the interactions between the “period” language of Sections 73(3)/74(3) and 73(4)/74(4) and the “financial year” language of Sections 73(10) and 74(10). The approach taken by the Hon’ble Delhi High Court in Ambika Traders case and similar view taken by the Allahabad and J&K High Courts, is the right one. Fraudulent availment of ITC is, by its nature, a chain of supplies designed to mislead the tax authorities wherein, a purchase can be made in one year, perhaps from a fake supplier, and the onward supply or more passing on of the ITC appears only on the next year’s return. It would force the department in those instances to break up what is essentially a single fraudulent scheme into isolated proceedings for each year, none of which, on its own, would reveal the pattern of fraud that only emerges when the transactions are read together over the years. A specific notice, otherwise within time of limitation, which gives quantification of tax, interest and penalty year-wise, does not cause any real prejudice to the assessee because it can raise its defence for each year in the reply. Thus, the Delhi High Court’s finding that bunching could actually be required to be complied with to prove the continuing chain of fraudulent ITC availment is the correct position to take until the issue is settled by the Hon’ble Supreme Court.
Notes:
[1] The Central Goods and Services Tax Act, No. 12 of 2017, § 74, India Code (2017).
[2] The Central Goods and Services Tax Act, No. 12 of 2017, §§ 73(3)-(4), 73(10), 74(3)-(4), 74(10), India Code (2017).
[3] Ambika Traders through proprietor Gaurav Gupta v. Additional Commissioner, Adjudication DGGSTI, CGST Delhi North (W.P.(C) 4853/2025, CM Appl. 22194/2025 & CM Appl. 22195/2025).
[4] Mathur Polymers v. Union of India (W.P.(C) 2394/2025 & CM Appl. 11289/2025).
[5] M/s Raghunath Enterprises v. Additional Commissioner, CGST, Delhi North (W.P.(C) 5352/2025 & CM Appl. 24389/2025).
[6] M/s Raghunath Enterprises v. Additional Commissioner, CGST, Delhi North (W.P.(C) 5352/2025 & CM Appl. 24389/2025).
[7] Gee Enn & Sons v. Union of India, 2025 SCC OnLine J&K 1180.
[8] SA Aromatics (P) Ltd. v. Union of India, 2026 SCC OnLine All 191.
[9] X.L. Interiors v. Commr., (2025) 147 GSTR 267 : 2024 SCC OnLine Ker 7722.
[10] SBI v. Union of India, 2026 SCC OnLine Cal 7539 (Cal. H.C. June 30, 2026).
[11] Milroc Good Earth Developers v. Union of India, (2026) 156 GSTR 436.
[12] Rite Water Solutions (India) Ltd. v. Commr., CGST & CE, (2026) 156 GSTR 453.
[13] Jagruteshwar Metals (P) Ltd. v. Union of India, 2026 SCC OnLine Bom 4017.
[14] Speedways Logistics (P) Ltd. v. Union of India, 2026 SCC OnLine Bom 3829.
[15] Paras Stone Industries v. Union of India, (2026) 159 GSTR 271.
[16] Rollmet v. Union of India, 2026 SCC OnLine Bom 2613.
[17] Titan Company Ltd. v. Joint Commissioner of GST & Central Excise, (2024) 15 Centax 118 (Mad.).
[18] Mathur Polymers v. Union of India (W.P.(C) 2394/2025 & CM Appl. 11289/2025).
[19] M/s Nee Gee Enn & Sons v. Union of India & Ors. (Special Leave to Appeal (C) Nos.10606-10607-2026).
Submitted By: Srijan | Year of Study: 3rd Year | Institution: National University of Study and Research in Law, Ranchi
