Smt R Ashaarajaa Vs Senior Intelligence Officer Directorate General of GST Intelligence (Madras High Court)
Madras High Court, in the case of Smt R Ashaarajaa Vs Senior Intelligence Officer, Directorate General of GST Intelligence, has ruled that issuing a single show cause notice (SCN) covering more than one financial year is impermissible under the Goods and Services Tax (GST) Act, 2017. The court quashed the notices in question, stating they were issued without proper jurisdiction.
The central issue in a series of writ petitions was the legality of the GST department’s practice of “bunching”—issuing a single SCN for alleged tax discrepancies across several financial years.
## Petitioners’ Arguments
Counsel for the petitioners argued that this practice is against the law, violates principles of natural justice, and severely prejudices the assessee. Their key submissions were:
- Statutory Framework: Sections 73 and 74 of the GST Act, which govern the determination of tax, set specific limitation periods for issuing notices and passing orders for each financial year. This implies that each year should be treated as a separate unit, requiring a distinct SCN.
- Procedural Hardship: Bunched notices are often issued just before the limitation period for the earliest financial year expires. This forces the assessee to rush the collection of evidence and prepare a reply for multiple years in a very short time, even when the limitation for later years is still far off.
- Practical Difficulties: A single assessment order for multiple years creates several hurdles:
- An assessee cannot apply for compounding of offences under Section 138 for a specific year.
- Availing an Amnesty Scheme, if introduced for a particular year, becomes impossible without settling the demand for all years included in the notice.
- It prevents an assessee from contesting the demand for one or two years while opting to settle the dues for others.
- Legal Precedents: The petitioners cited judgments like Titan Company Ltd. vs. Joint Commissioner of GST & Central Excise (Madras High Court) and M/s. Tharayil Medicals vs. The Deputy Commissioner (Kerala High Court), which had previously held that bunching of notices is not permissible.
## Respondents’ Counterarguments
The Additional Solicitor General, representing the GST department, contended that the law does not explicitly prohibit issuing a single SCN for multiple years. The main points were:
- No Express Bar: Sections 73 and 74 do not contain any specific provision that bars the issuance of a single notice for several years.
- Interpretation of “Any Period”: The phrase “any period” used in the sections should be interpreted broadly to include a block of years and is not restricted to a single financial year.
- Meaning of “Tax Period”: If the petitioners’ logic is accepted, the department would have to issue 12 separate notices for each month within a single financial year, as a month is also a “tax period.” Since assessees accept the clubbing of 12 monthly periods into one annual notice, they should also accept the clubbing of multiple years.
## Court’s Analysis and Ruling
After examining the arguments and the relevant legal provisions, the High Court sided with the petitioners. The court’s reasoning focused on the interpretation of the GST Act.
- Financial Year as the Unit: The court observed that Sections 73(10) and 74(10) establish the time limit for passing an order as three or five years, respectively, from the due date of filing the “annual return for the financial year.” This phrasing, the court concluded, clearly establishes the financial year as the distinct unit for assessment and limitation. Each financial year is separate, and its limitation period cannot be carried over or clubbed with others.
- ‘Tax Period’ Defined: The court resolved the debate over the term “any period” by linking it to the term “tax period” used elsewhere in the same sections. The GST Act, under Section 2(106), defines “tax period” as “the period for which the return is required to be furnished.” Since GST law requires monthly and annual returns, a tax period can be a month or a full financial year, but nothing more. There is no provision for filing a single return covering multiple financial years. Therefore, an SCN cannot be issued for a period longer than one financial year.
- Prejudice to Assessee: The court acknowledged the significant hardships faced by assessees due to bunched notices, including the inability to selectively compound offences, avail year-specific amnesty schemes, or file targeted appeals. This prejudicial impact on the rights of the assessee further strengthened the case against bunching.
- Supporting Judgments: The court drew support from the Supreme Court’s decision in State of Jammu and Kashmir and Others v. Caltex (India) Ltd, which noted that assessments spanning different years could be split up. More significantly, it endorsed the reasoning of the Kerala High Court in the M/s.Tharayil Medicals case, which concluded that separate notices are mandatory for each assessment year to protect the assessee from prejudice, especially concerning different limitation periods under Sections 73 and 74.
Based on this analysis, the court declared that the issuance of a single show cause notice for more than one financial year is impermissible and without jurisdiction. It held that an SCN can be issued based on a monthly return or an annual return for a single financial year, but not beyond.
