2025 (7) TMI 1402 - HC - GST

Bunching of Show Cause notice for more than one financial year - time limitation - violation of principles of natural justice - HELD THAT - 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. While examining Section 128 of GST Act which deals with the power to waive penalty or fee or both it is clear that the Government may introduce any Scheme by way of notification to waive in part or full any penalty. In such case if a show cause notice was issued prior to the date of such notification by clubbing more than one financial year the petitioners will be forced to pay the tax amount for all the financial years included in the said notice for availing the aforesaid Scheme introduced by the Central Government. Hence it will create a great hardships to the petitioners. 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 ("bunching") for more than one financial year under the Goods and Services Tax Act, 2017 ("GST Act") is permissible.Whether the limitation periods prescribed under Sections 73 and 74 of the GST Act apply separately to each financial year or can be aggregated for multiple years in a single notice.Whether the practice of issuing a combined show cause notice for multiple financial years prejudices the rights of the assessee, including the ability to avail compounding of offences or amnesty schemes.The interpretation of "tax period" under the GST Act and its impact on the issuance of show cause notices.The legal consequences of issuing assessment orders based on combined show cause notices covering multiple financial years.

RULINGS / HOLDINGS:

The GST Act permits issuance of show cause notices only based on the "tax period," which is defined as the period for which the return is required to be furnished, i.e., monthly or yearly returns, and therefore, no show cause notice can be issued for more than one financial year. The Court emphasized a "clear bar for 'bunching of show cause notice', i.e., issuance of single show cause notice for more than one financial year."The limitation periods under Sections 73(10) and 74(10) of the GST Act apply independently to each financial year, with three years for non-fraud cases and five years for fraud or willful misstatement cases, making aggregation of years in a single notice impermissible as it conflicts with the statutory scheme.The issuance of a combined show cause notice for multiple financial years causes "unnecessary hardships" to the assessee, including inability to file applications for compounding offences under Section 138 or avail amnesty schemes selectively for particular years, and prejudices the right to contest or settle issues for individual financial years.The word "any period" in Sections 73(1) and 74(1) refers to a single "tax period" as defined under Section 2(106) of the GST Act, and does not extend to multiple financial years; thus, a single notice cannot cover multiple years.Assessment orders based on combined show cause notices for multiple financial years are issued without jurisdiction and are therefore liable to be quashed.

RATIONALE:

The Court relied primarily on the statutory framework of the GST Act, particularly Sections 73 and 74, which prescribe the procedure and limitation periods for issuance of show cause notices and passing of assessment orders, emphasizing the separate treatment of each financial year as a distinct tax period.The interpretation of "tax period" under Section 2(106) of the GST Act as the period for which a return is required to be furnished (monthly or yearly) was pivotal in concluding that notices cannot be issued beyond the relevant financial year.The Court referred to precedent including a Constitution Bench decision holding 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," reinforcing the principle of separate limitation periods and assessments per year.Earlier judicial pronouncements, including a prior ruling of this Court in the "Titan case" and a Division Bench decision from Kerala High Court, were cited to support the impermissibility of bunching and to highlight the prejudicial effects on the assessee's rights and statutory safeguards.The Court rejected the respondents' argument that "any period" could mean multiple financial years, clarifying that the statutory scheme contemplates issuance of notices based on individual tax periods and that acceptance of bunching for monthly periods does not justify bunching for multiple financial years.The Court noted practical hardships caused by bunching, such as loss of opportunity to avail compounding or amnesty schemes selectively, and the risk of colorable exercise of power by bypassing shorter limitation periods applicable under Section 73 by clubbing with Section 74 proceedings.