2025 (7) TMI 1401 - HC - GST

Bunching of Show Cause notices - issuance of a single SCN for more than one financial year - HELD THAT - In terms of sub-section (1) of Section 73/74 of the GST Act on the person chargeable with tax which has not been paid etc. requiring him to show cause as to why he should not pay the amount specified in the notice along with the interest and penalty for various situations mentioned therein. Section 73(10)/74(10) of the GST Act specifically provides the time limit of 3 years/5 years from the last date for filing the annual returns for the financial year to which the tax dues relates to. Thus the GST Act considered each and every financial year as separate unit due to which the limitation has been fixed for each and every financial year separately. When such being the case clubbing more than one financial year for the purpose of issuance of show cause notice would not be considered as in accordance with the provisions of Section 73/74 of the GST Act. Therefore the limitation period of 3 years/5 years would be separately applicable for every financial year thus the limitation period would vary from one financial year to other. It is not that the limitation would be carried over or continuing in nature so as to club the financial years together. For these reasons also the bunching of show cause notice is impermissible. There is no doubt that in terms of GST Law any period for the purpose of issuance of show cause notice includes monthly tax period or yearly tax period and the GST Act will not permit for issuance of show cause notice beyond such period i.e. no show cause notice can be issued for the period of more than one financial year - a conjoint reading of the word tax period as defined in Section 2(106) of GST Act along with the provisions of Section 73(1), (2), (3), (4), (10)/74(1), (2), (3), (4), (10) of GST Act makes it very clear that there is a specific bar in terms of the Section 73/74 for bunching of show cause notice i.e. no show cause notice can be issued for more than one financial year. The issuance of composite show cause notice covering multiple financial years making composite demand for multiple years without separate adjudication per year frustrate the limitation scheme and prevents the petitioner from giving year-specific rebuttals which results in jurisdictional overreach i.e. the proper officer acts without authority of law rendering the order void ab initio. Further the impugned order is passed in contravention of clear statutory safeguards under Section 74(10) and Section 136 of GST Act. The GST Act permits only for issuance of show cause notice based on the tax period. Therefore if the annual return is filed the entire year would be considered as a tax period and accordingly the show cause notice shall be issued based on the said annual returns - If show cause notice is issued before the filing of annual returns the same can be issued based on the filing of monthly returns. Petition allowed.

Summary

ISSUES:

Whether the issuance of a single show cause notice covering more than one financial year ("bunching of show cause notices") is permissible under Sections 73 and 74 of the Goods and Services Tax Act, 2017 ("GST Act").Whether a single assessment order can be validly passed for multiple financial years.Whether the limitation periods prescribed under Sections 73(10) and 74(10) of the GST Act apply separately to each financial year or can be aggregated across multiple years in a composite notice/order.The legal effect of issuing composite show cause notices/orders on the assessee's rights, including filing applications for compounding offences and availing amnesty schemes under the GST Act.The interpretation of the term "tax period" under Section 2(106) of the GST Act and its impact on the issuance of notices.Whether issuance of composite notices/orders for multiple financial years amounts to jurisdictional overreach and renders the order void ab initio.

RULINGS / HOLDINGS:

The issuance of a single show cause notice for more than one financial year is impermissible under Sections 73 and 74 of the GST Act, as there is a "clear bar for 'bunching of show cause notice'".A single assessment order cannot validly be passed for multiple financial years; each financial year must be adjudicated independently in accordance with the limitation periods fixed for that year.The limitation periods under Sections 73(10) and 74(10) of the GST Act apply separately to each financial year, and cannot be aggregated or extended by clubbing multiple years in a composite notice or order.Composite notices/orders cause "unnecessary hardships" to the assessee, including inability to file applications for compounding offences under Section 138 or avail amnesty schemes under Section 128 for particular years, thereby prejudicially affecting the assessee's rights.The term "tax period" as defined in Section 2(106) means the period for which the return is required to be furnished, which includes monthly or annual returns, but does not extend beyond the relevant financial year; hence, notices must be issued based on specific tax periods and cannot cover multiple financial years.Issuance of composite show cause notices/orders for multiple financial years constitutes jurisdictional overreach, rendering such orders "void ab initio" and liable to be quashed.

RATIONALE:

The Court applied the statutory framework of the GST Act, primarily Sections 73 and 74, which separately govern determination of tax not paid or short paid, with distinct time limits for passing orders (three years under Section 73(10) and five years under Section 74(10)) measured from the due date for furnishing annual returns for each financial year.The provisions mandate issuance of show cause notices for "any period" which is interpreted as "tax period" defined under Section 2(106) as the period for which returns are filed, i.e., monthly or annual periods, but not extending beyond one financial year.Section 73(3) and 74(3) allow issuance of statements for subsequent tax periods after an initial notice, but these are confined to periods within the relevant financial year and rely on the same grounds as the initial notice, reinforcing the prohibition on multi-year notices.The Court relied on precedent including a Constitution Bench decision holding that assessments encompassing different years must be split and taxed separately, and a prior ruling of the same High Court (Titan case) that "bunching of show cause notices is impermissible".The Court recognized practical hardships caused by composite notices/orders, such as prejudice to the assessee's ability to contest specific years, avail compounding under Section 138, or benefit from amnesty schemes under Section 128, which are structured on a year-wise basis.The Court rejected the argument that "any period" could mean multiple financial years, emphasizing statutory language and legislative intent to treat each financial year as a separate unit for assessment and limitation purposes.The decision aligns with principles of jurisdictional competence, holding that exceeding statutory limits by clubbing years amounts to acting "without authority of law" and invalidates the assessment order.