SA Aromatics Pvt Ltd and another Vs Union of India and 5 others (Allahabad High Court)
The Allahabad High Court decided a batch of writ petitions challenging proceedings initiated under Sections 73 and 74 of the Central Goods and Services Tax Act, 2017 and the U.P. Goods and Services Tax Act, 2017. The petitions raised common legal questions regarding the validity of composite show cause notices (SCNs), limitation periods for issuing notices and adjudication orders, proceedings involving multiple authorities, and the bar against parallel proceedings under Section 6(2)(b) of the Acts.
The petitioners challenged the legality of SCNs issued for multiple tax periods spanning different financial years (FYs), issuance of notices to more than one noticee, and alleged violations of Section 6(2)(b), which prohibits parallel proceedings on the same subject matter. In certain cases, petitioners also objected to situations where two different authorities passed separate adjudication orders arising from the same SCN. Another challenge concerned directions issued by authorities to service recipients to withhold payments due to the petitioner.
The petitioners argued that tax proceedings under Sections 73 and 74 must be confined to a single tax period or financial year, as the GST framework is based on return-based assessments linked to tax periods. They contended that issuing composite notices covering several financial years or multiple noticees was contrary to the statutory scheme. They further relied on judicial precedents asserting that taxing statutes must be strictly interpreted and that powers conferred by statute must be exercised strictly in the manner prescribed.
The revenue authorities argued that the GST law permits composite notices covering multiple tax periods and that such notices do not prejudice the taxpayer if the demand is clearly quantified. They relied on decisions from various High Courts supporting the view that issuing a single SCN for multiple periods is permissible. According to the revenue, Sections 73 and 74 prescribe only limitation periods for adjudication and do not restrict the scope of proceedings to a single financial year.
The High Court examined the scheme of the GST legislation and distinguished between two mechanisms under the Act: return-based assessment and adjudication proceedings. Assessment procedures under Chapter XII are linked to tax periods and returns filed for specific periods such as months, quarters, or financial years. In contrast, adjudication proceedings under Sections 73 and 74 deal with disputes concerning specified tax amounts, such as unpaid tax, short-paid tax, erroneous refunds, or wrongly availed input tax credit.
The Court held that adjudication proceedings are dispute-based rather than return-based. Therefore, they are not confined to a single tax period or financial year. The statutory language of Sections 73 and 74 does not restrict the issuance of notices to a single tax period. Moreover, Sections 73(3) and 74(3) permit the issuance of statements covering additional periods arising from the same grounds as the original notice. Accordingly, the Court concluded that a composite SCN covering multiple tax periods or financial years is legally permissible.
The Court also held that issuing a notice to multiple noticees is not barred under Section 74 because the statute expressly contemplates such proceedings. Any dispute regarding whether a particular noticee has been wrongly included would involve factual examination during adjudication.
However, the Court accepted the petitioners’ contention regarding the prohibition under Section 6(2)(b) of the Acts. Relying on earlier decisions and the Supreme Court’s ruling in Armour Security (India) Ltd., the Court held that parallel proceedings on the same subject matter by different authorities are barred once adjudicatory proceedings are initiated through a show cause notice. Proceedings violating this principle were therefore invalid.
The Court also held that the limitation provisions under Sections 73(10) and 74(10) are mandatory. These provisions prescribe rigid timelines for issuing adjudication orders, calculated from the due date of furnishing the annual return for the relevant financial year. Notices issued within the prohibited time window or proceedings conducted beyond the prescribed limitation period are invalid.
Further, the Court ruled that a single show cause notice cannot result in multiple adjudication orders by different authorities unless the proceedings are formally transferred. Passing separate orders by different authorities arising from the same notice was held to be legally unsustainable.
In one case, the Court also held that directions issued by tax authorities to service recipients to withhold payments due to the petitioner were not supported by statutory authority. In the absence of lawful garnishee proceedings or a determined demand, such directions were held invalid.
In conclusion, the Court held that composite show cause notices covering multiple tax periods, financial years, or noticees are permissible under Section 74. However, the Court upheld challenges based on violation of Section 6(2)(b), breach of mandatory limitation provisions, issuance of multiple adjudication orders from a single notice, and unlawful directions to withhold payments. Based on these findings, some petitions were allowed fully or partly, while others were dismissed.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
