GST SCN Cannot Cover Multiple Financial Years: Bombay High Court

Imagine receiving a single GST show cause notice covering five different financial years.

At first glance, it might look efficient from the department’s perspective one notice, one proceeding, one demand. But for a taxpayer, this raises an obvious question:

Is this even allowed under GST law?

The Bombay High Court (Nagpur Bench) recently addressed this exact issue in the case of M/s Hakikatrai and Sons vs Union of India.

And the Court’s answer was quite clear:

GST authorities cannot club multiple financial years together in a single show cause notice under Section 74 of the CGST Act.

Let’s unpack what happened and why this ruling matters.

The Beginning of the Dispute

The case began when the GST department issued a Show Cause Notice (SCN) dated 26 June 2025 to the taxpayer.

The allegation?

According to the department, the taxpayer had:

• Suppressed taxable value, and
• Short paid GST

over a fairly long stretch Financial Years 2018-19 to 2022-23.

So the department did what it thought was convenient:

Instead of issuing five separate notices, it issued one consolidated notice covering all five years.

But the taxpayer challenged this approach before the High Court.

And that’s where the real legal discussion began.

The Key Question Before the Court

The case boiled down to one important procedural issue:

Can GST authorities issue one show cause notice covering several financial years under Section 74 of the CGST Act?

Or must they issue separate notices for each year?

At first glance, the answer might seem technical. But it actually goes to the very structure of GST law.

Understanding Section 74 When Fraud Is Alleged

The notice in this case was issued under Section 74 of the CGST Act, 2017.

This section is triggered in serious situations where tax has not been paid due to:

• Fraud
• Suppression of facts
• Wilful misstatement
• Intent to evade tax

Naturally, the consequences here are heavier.

Under Section 74, the department can demand:

• Tax
• Interest
• Penalty

And importantly, the time limit for issuing the order is five years from the due date of filing the annual return for that financial year (Section 74(10)).

This time limit becomes crucial in understanding the Court’s reasoning.

GST Is Built Around “Tax Periods”

One concept that often gets overlooked is the idea of a “tax period.”

Under Section 2(106) of the CGST Act, a tax period means:

the period for which the return is required to be furnished.

Now think about how GST works in practice.

Businesses file:

• Monthly returns (GSTR-3B)
• Outward supply statements (GSTR-1)
• Annual return under Section 44

Even though returns are filed monthly, the law still treats each financial year as a distinct assessment period for many purposes.

And this structure is exactly what the High Court focused on.

The Taxpayer’s Argument

The taxpayer’s counsel made a simple but powerful argument before the Court.

They said:

1. GST law treats each financial year separately.

2. The limitation period under Section 74 runs separately for each year.

3. Therefore, multiple years cannot be combined into one show cause notice.

To support this argument, the petitioner relied on an earlier judgment of the Bombay High Court in Milroc Good Earth Developers vs Union of India.

That case had already taken the view that consolidated notices covering several financial years are not permissible under GST law.

The Department’s Counter-Argument

The department had its own reasoning.

It argued that this was a case involving fraudulent availment of input tax credit (ITC).

And in such cases, the alleged transactions might stretch across multiple years.

So according to the department, issuing one consolidated notice actually helps establish the entire pattern of fraud.

To strengthen its position, the department relied on a Delhi High Court decision, where consolidated notices had been considered permissible in fraud cases.

So now the Court had two competing views before it.

What the Bombay High Court Observed

After examining the statutory framework, the Court leaned firmly in favour of the taxpayer.

The judges highlighted several key aspects of GST law.

1. GST Liability Is Linked to Each Financial Year

The Court noted that the GST framework revolves around defined tax periods.

Even though businesses file returns regularly during the year, the financial year remains a crucial unit for assessment and recovery.

In other words, the law expects tax disputes to be examined year by year.

2. Limitation Period Is Also Year Specific

The Court then looked at Section 74(10).

This provision states that the order must be issued within five years from the due date of the annual return for the relevant financial year.

Notice something important here.

The limitation is tied to “the financial year to which the tax relates.”

So if the tax demand relates to:

• FY 2019-20
• FY 2020-21
• FY 2021-22

each year will have its own limitation timeline.

Combining them into one notice would mix up these timelines.

And that, according to the Court, is not what the law permits.

3. Consolidated Notices Can Harm the Taxpayer’s Defence

The Court also pointed out a practical problem.

If five years are clubbed together:

• Tax computations become complicated
• Limitation periods get mixed up
• The taxpayer’s ability to respond year-wise is affected

In short, consolidation can compromise procedural fairness.

What About the Delhi High Court Judgment?

The department had relied heavily on a Delhi High Court ruling that allowed consolidated notices.

However, the Bombay High Court clarified an important point.

Although the Delhi decision had been challenged before the Supreme Court, the Supreme Court dismissed the petition without examining the merits.

So the principle of merger of judgments did not apply.

More importantly, since the Bombay High Court had already taken a different view in earlier cases, the authorities in its jurisdiction must follow Bombay High Court precedents.

The Final Outcome

After considering all these aspects, the Court concluded that the notice issued to the taxpayer was not valid.

Accordingly:

• The show cause notice dated 26 June 2025 was quashed.
• However, the department was given liberty to issue fresh notices separately for each financial year, if legally permissible.

So the door was not closed for the department but it must follow the correct statutory procedure.

A Simple Example to Understand the Ruling

Let’s imagine a practical situation.

Suppose a business allegedly suppresses sales across three years:

Under this judgment, the department must issue:

• SCN 1 – FY 2019-20
• SCN 2 – FY 2020-21
• SCN 3 – FY 2021-22

What it cannot do is issue one combined notice for all three years.

Why This Judgment Matters

This decision is significant for several reasons.

1. It reinforces the year-wise structure of GST law.

2. It protects taxpayers from procedural shortcuts.

3. It clarifies that even fraud allegations cannot justify bypassing statutory limits.

4. It gives taxpayers a strong ground to challenge multi-year consolidated notices.

Final Thoughts

GST litigation often focuses on numbers tax demands, ITC, penalties.

But sometimes, the real battle is about procedure.

The ruling in M/s Hakikatrai and Sons vs Union of India reminds us that:

Tax authorities must follow the framework laid down in the statute — even when pursuing serious allegations like fraud.

Convenience cannot override the structure of the law.

And in GST, that structure clearly works one tax period at a time.