A Show Cause Notice is vital document to proceed the case under the law. Under the GST Law the Notice under section 73, 74 and from 2024-25 under section 74A is issued if there is the case of any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason.
Now-a-days it has become practice of the GST Department that the Department is issuing a notice clubbing the multiple assessment years. It has also been observed that the Notice is issued without verifying the records of the Tax Payer available in the GST Portal and is issued without providing discrepancies year wise. The Tax Payer remembers the old days of VAT when the notice was issued for one year and after completion the assessment of that one year the Tax Payer would feel relieve that no further query be received after completion of that assessment year. In GST regime when he receives notice for multiple years without stating the specific reasons, he confronts himself in pressure that how he will response the notice issued for the multiple years.
In this article I will discuss about whether the SCN may be issued for multiple years or not and whether a single order may also be issued for multiple years or not.
For the discussion purpose relevant provisions of section 74 are considered herein.
Section 74 (1) – “Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.”
By careful reading it is observed that the section 74(1) is not asking for issuing the notice year-wise. The provisions are highlighting the circumstances when a notice should be issued and the notice shall require from the person to show cause as to why he should not pay the amount specified in the notice. Therefore, according to the section 74(1) a notice may be issued for multiple years.
Section 74(9) – “The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order.”
According to the section 74(9) requires to issue the order for which the Notice under section 74(1) was issued. This section is also not barring that an order should not be of multiple years.
Section 74(10) – “The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund.”
This section imposes restriction upon the Proper Officer that the Order must have been issued within a period of five years from the due date for furnishing of annual return for the financial year. Therefore, the order issued under section 74(9) should have been issued within limitation period specified stated under section 74(10).
As per my opinion it can be safely said by taking reliance the provisions of section 74(10) that the order must be issued for a single financial year.
In various judgements provided as under the Hon’ble Courts have agreed that issue of the Show Cause Notice for multiple years is a flaw of the law and not sustainable.
1. M/s THARAYIL MEDICALS – WA NO. 627 OF 2025 – Date: 08.04.2025 – Kerala High Court
> A cumulative reading of Section 74(1), (2) and (10) leaves no room for any doubt that each assessment year can be proceeded separately by the assessing officer.
> For each assessment year, the time limit prescribed for the completion of the proceedings is distinct and different.
> When we read sub-sections (9) and (10) of Section 74, which specifically refer to “financial year to which the tax not paid or short paid or input tax wrongly availed or utilised relates” while passing the final order of adjudication, it presupposes that independent show cause notice be issued to the assessee for each different years of assessment while proceeding under Section 74.
> if a composite notice is issued, the assessee will be prejudiced inasmuch as the availability of a lesser period to submit a proper and meaningful explanation.
Department filed appeal against the judgment of the ld. Single Judge – The contention of the Department is essentially that the learned Judge ought not to have permitted the passing of separate orders for the financial years 2018-19 onwards since there is no provision envisaged under the CGST Act for issuing separate notices and orders for each financial year
> In our view, consolidated show cause notices covering multiple financial/ assessment years can be issued only in circumstances where the statutory provision provides for a common period for initiation and completion of the adjudication. For instance, under Section 28 of the Customs Act, a show cause notice invoking the extended period of limitation of five years has to cover a prior period of five years ending with the date of issuance of the show cause notice. Similar was the provision under Section 11A of the erstwhile Central Excise Act. Under both of the above provisions, the show cause notices issued, irrespective of whether it covered a single financial/assessment year or multiple years, had to be adjudicated within a fixed period of one year from the date of the show cause notice. The scheme of adjudication is different under the CGST Act. Under Section 74 of the CGST Act, the end termini for adjudication varies for each financial/assessment year, since it is not pegged to the date of the show cause notice but to a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to. Issuing a consolidated show cause notice covering various financial/assessment years would cause prejudice to an assessee who would not get the full period envisaged for adjudication under the Statute, if that period is circumscribed by the limitation period prescribed in relation to an earlier financial/assessment year. The statutory period available for an assessee to put forth its contentions against the show cause notice in an effective manner cannot be curtailed by an unnecessary act on the part of the Department in issuing a consolidated show cause notice that includes therein a financial/assessment year in relation to which the period for passing a final order expires earlier.
> A consolidated notice would also result in a consolidated adjudication order covering several financial/assessment years and in the event of it being adverse to the assessee, the fee/pre deposit required to be paid by an assessee for preferring a statutory appeal would also be higher. This could not have been the Scheme of the statutory provisions which are expected to adhere to principles of fairness in taxation.
> Observations of Justice H.R. Khanna in CIT v. Simon Carves Ltd. [(1976) 4 SCC 435] as regards the nature of the quasi-judicial function exercised by assessing officers:
“The taxing authorities exercise quasijudicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. We are wholly unable to subscribe to the law that unless those authorities exercise the power in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed not to have exercised it in a proper and judicious manner.”
> Section 73(10) of the CGST Act mandates a specific time limit from the due date for furnishing the annual return for the financial year to which the tax due relates. The law stipulates that particular actions must be completed within a designated year, and such actions should be executed in accordance with the law’s provisions. The principles enunciated in the judgment cited by the Hon’ble Supreme Court are directly applicable to the present case.
> The Hon’ble Supreme Court’s decision in State of Jammu and Kashmir and Others vs. Caltex (India) Ltd. [AIR 1966 SC 1350]. The Hon’ble Apex Court held that where an assessment encompasses different assessment years, each assessment order can be distinctly separated and must be treated independently.
> By issuing bunching of show cause notices for five Assessment Years starting from 2017-18 to 2021-22, the respondents are trying to do certain things indirectly which they are not permitted to do directly and the same is not permissible in law. If the law states that a particular action has to be completed within a particular year, the same has to be carried out accordingly. The limitation period of three years would be separately applicable for every assessment year and it would vary from one assessment year to another. It is not that it would be carried over or that the limitation would be continuing in nature and the same can be clubbed. The limitation period of three years ends from the date of furnishing of the annual return for the particular financial year.
> State of Jammu and Kashmir and Others v. Caltex (India) Ltd – The SC has held that where an assessment encompasses different assessment years, each assessment year could be easily split up and dissected and the items can be separated and taxed for different periods. The said law was laid down keeping in mind that each and every Assessment Year will have a separate period of limitation and the limitation will start independently and that is the reason why the Hon’ble Supreme Court has held that each assessment year could be easily split up and dissected and the items can be separated and taxed for different periods. The said principle would apply to the present case as well.
ADVERSE ORDER – SCN MAY BE ISSUED FOR MULTIPLE YEARS
> There is nothing in Section 74 and more particularly 74 (1) which would prohibit the Authority from issuing a notice calling upon the assessee to pay tax that has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised, by reason of fraud, or any wilful misstatement or suppression of facts to evade tax. At least prima facie, a notice under Section 74 (1) can be issued for any period provided said notice is given at least 6 months prior to the time limit specified in sub-section (10) of Section 74 for issuance of the order.
Conclusion and My Observations
> The Notice may be issued under section 73(1) for multiple years.
> That all the years contemplating in the notice issued must be within the limitation period stating under section 73(2).
> That Summary of Show Cause Notice in form DRC-01 must be either issued separately for each year or such summary be stated separately for each year in the form DRC-01 so that the Tax Payer may contest separately for each year.
> That the order to be issued u/s 73(9) must be issued separately for each year within limitation period stating under section 73(10). A consolidated order i.e. one order pertaining to multiple assessment years cannot be passed.
> The Legislative amendments require for clear guidance on this issue.
Disclaimer: In this article, I have expressed my opinion without challenging anyone or refuting anything. The readers can accept or reject my opinion at their own discussion.
(PARVEEN KUMAR MAHAJAN)
Advocate
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