Issuance of a single show cause notice or assessment order for multiple financial years under the GST Act is prohibited
The Madras High Court, in Smt. R. Ashaarajaa v. Senior Intelligence Officer, ruled that issuing a single show cause notice or assessment order for multiple financial years under the GST Act is prohibited and constitutes a violation of statutory procedure. The case involved a taxpayer who received a consolidated notice and order for several financial years. The Court determined that Sections 73 and 74 of the GST Act, which govern the determination of tax liability, require separate notices and orders for each financial year because every year is treated as a distinct “tax period.” This adherence to separate periods is necessary due to the individual limitation period prescribed for each financial year. Clubbing multiple years was held to prejudice the taxpayer by creating procedural hurdles, such as complicating access to amnesty schemes for specific years, hindering the collection of evidence, and undermining the right to appeal each year’s facts distinctly. The Court rejected the argument that “any period” in the Act permits clubbing multiple financial years, clarifying that the term is limited by the definition of “tax period,” which does not extend beyond a single financial year. Consequently, all such consolidated notices and assessment orders were quashed for lack of jurisdiction and procedural violation.
Facts:
Smt. R. Ashaarajaa (“the Petitioner”), partner in JRD Realtorss, Coimbatore, received a consolidated show cause notice and assessment order for multiple financial years from GST authorities.
The Senior Intelligence Officer, Directorate General of GST Intelligence, Coimbatore (“the Respondent”), initiated proceedings by clubbing demands for several financial years in a single notice and order.
The Petitioner argued that Sections 73 and 74 of the GST Act require separate notices and orders for each financial year and tax period. Clubbed notices violate statutory limitation periods, undermine principles of natural justice, and create hardships such as, Difficulty in collecting evidence due to limited time frames, Inability to apply for compounding or amnesty schemes for specific years, Hindrance in contesting issues relevant to some years while admitting others, Risk of the respondent bypassing the statutory requirement for separate years by indirect means and Prejudices the rights to appeal and to address each year’s facts distinctly.
The Respondent contended that the GST Act does not expressly prohibit clubbing, reading “any period” in Sections 73 and 74 as permitting notices for blocks of years. They argued that since taxpayers accept clubbing of monthly tax periods in annual returns, clubbing for multiple years should likewise be permissible, and that these consolidated actions help administrative efficiency.
Aggrieved by clubbed notices and assessment orders which posed procedural and substantive obstacles, the Petitioner filed a writ petition under Article 226 of the Constitution, seeking quashing based on violations of Sections 73, 74 of the CGST Act and principles of natural justice.
Issue:
Whether GST authorities can validly issue a single show cause notice or assessment order for more than one financial year under Sections 73 or 74 of the GST Act?
Held:
The Hon’ble Madras High Court in W.P. Nos. 29716, 29720, 29726 & 34137 of 2024 held as under:
- Observed that, every financial year is a separate tax period under the GST Act and limitation for notices/orders is individually prescribed for each year.
- Noted that, the structure of Sections 73, 74 demands discrete notices and orders per tax period and financial year.
- Recognized that clubbing prejudices the assessee, by restricting the time available for defence and evidence collection, complicates compounding applications and amnesty scheme access for particular years, and undermines right to appeal and to contest specific years separately.
- Noted that ,while “any period” in legislation means “any tax period,” the definition of “tax period” under Section 2(106) CGST Act, 2017 limits this to the monthly or annual return period and never more than one financial year.
- Rejected the Respondent’s argument, ruling that neither the text nor the intent of the GST Act permits clubbing across years.
- Held that, all show cause notices and assessment orders clubbing multiple financial years are quashed for want of jurisdiction and violation of statutory procedure.
Our Comments:
This decision marks continued consistency in judicial interpretation with regard to clubbing of sow cause notices under the CGST Act, 2017. The Court reads the bunching of notice for more than one financial year is against the spirit Section 73 and Section 74 of the Act. The Supreme Court in the case of State of Jammu and Kashmir and Others v. Caltex (India) Ltd., [AIR 1966 SC 1350] 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.”. This demonstrates that each tax year is a self-contained unit for assessment, a principle universally applied by High Courts in GST disputes. Further the Madras High Court has held in various cases, for instance in the case of Titan Company Ltd., vs. Joint Commissioner of GST & Central Excise [(2024) 15 Centax 118 (Mad.)] has clearly held that bunching of notices is impermissible.
Relevant Provisions:
Section 73 (10) of the CGST Act, 2017
“73. Determination of tax pertaining to the period up to Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any willful-misstatement or suppression of facts.-
(10) The proper officer shall issue the order under sub-section (9) within three 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 three years from the date of erroneous refund.”
Section 74 (10) of the CGST Act, 2017:
74. Determination of tax pertaining to the period up to Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts.-
“(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.”
Section 2(106) of the CGST Act, 2017
“(106) “tax period” means the period for which the return is required to be furnished;”
****
(Author can be reached at info@a2ztaxcorp.com)
Author Bio
