BUNCHING OF SHOW CAUSE NOTICES FOR MORE THAN ONE FINANCIAL YEAR

In Smt R Ashaarajaa, J. Rajendran, R. Deepak Vigneshvar And Others Versus The Senior Intelligence Officer, The Superintendent of Central Tax CGST Central Excise And Others - 2025 (7) TMI 1402 - MADRAS HIGH COURT, the writ petitioners filed these writ petition before the High Court challenging the single show cause notice issued for more than one financial year by the Department. The petitioners submitted the following before the High Court-

• The bunching of show cause notice for more than one financial year is bad in law and against the principles of Natural Justice and also prejudice the interest of the assessee.
• The Act prescribes the limitation for the issue of show cause notice and passing the assessment orders for each and every financial year under Section 73 and 74 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short).
• The bunching show because notice was issued at the fake end of the limitation period, for which the petitioners may not able to collect evidence and to reply to the show cause notice.
• The show cause notices for the year 2017-18 to 2022-23.
• The said notice was issued one month prior to the limitation period of the financial year 2017-18.
• The petitioners were, therefore, unable to collect all the relevant documents to substantiate their cases, which unnecessary hardships to the petitioners.
• The Department may issue show cause notice for each financial year.
• Various High Courts held that the assessment orders have to be passed by the Department for each assessment year independently with a gap of a minimum of 4 weeks.

Therefore, the petitioners prayed that all the show cause notices issued by the Department may be quashed.

The Department submitted the following before the High court –

• There is no prohibition to issue a single show cause notice for more than one financial year under Section 73 and 74 of the Act and therefore there is no merit in the writ petitions.
• In the sections 73 and 74 it has been stated that as ‘any tax period’ which means the issuance of notice shall be for any block of years and the same is not constrained to a single year.
• The phrase ‘any tax period’ includes not only the year wise tax period but also the month wise tax periods. There will be 12 tax periods for one financial year. It is the case of the petitioners is that 12 show cause notices can be issued for one financial year.
• If the petitioner accepts bunching of show cause notice for a financial year, show cause notices can be issued for more than one financial year.

The Department, therefore, prayed for the dismissal of all the writ petitions.

The High Court considered the submissions made by the petitioners and countered by the Department. The only issue to be decided by the Court is as to whether the Department can issue single show cause notice for more than one financial year.

The Court analyzed the provisions of-

• Section 73 - Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful mis-statement or suppression of facts.
• Section 74 – Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason of fraud or any willful mis-statement or suppression of facts.

The High Court observed that the proper officer may serve a statement, containing the details of tax not paid etc., other than covered under section 73(1) /74(1) on the person chargeable with tax, which means that a statement is required to be served to the subsequent tax periods and the issuance of such statement shall be deemed to be a notice under section 73(1) /74(1) of the Act.  The High Court further observed that if the notice is based on the Annual Return the notice should be for any tax period within the relevant financial year but at any cost it should not be beyond the said relevant financial year.  Therefore, when the Act mandates for issuance of notice in a particular manner, the notice has to be issued accordingly. There is a clear bar no ‘bunching of show cause notice’ for more than one financial year.

The High Court further observed that Section 73(10) and 74(10) of the 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 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. Therefore, the High Court held that the clubbing more than one financial year, for the purpose of issuance of show cause notice, would not be considered under section 73/74 of the 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.

The High Court further observed that a conjoint reading of Section 73(1)(3) & 74(1)(3) &(4) it makes it clear that ‘any period’ is nothing but the ‘tax period’. Therefore, based on the tax period, the Department can issue show cause notice. The tax period will be determined based on the filing of the returns. An assessee is required to file monthly return as well as final return under the Act.  In respect of monthly return show cause notice can be issued on the basis of monthly return. In respect of annul return, notice can be issued for the entire financial year but not more than the relevant financial year.

The High Court further analysed the hardships that can be experienced in view of issuing bunching of show cause notices. They are as below-

• The taxpayer will not be able to file an application for compounding of offenses under Section 138 of the Act, for any particular financial year.
• If the Department introduced the Amnesty Scheme for any one or two financial years, the petitioner cannot avail the said Scheme without paying the amount demanded by the Department for all the financial years included in the notice/order.
• If the taxpayer is intend to contest the issue pertaining to one or two years and is willing to remit the tax amount for remaining years, the bunching of notices/orders will create unnecessary hurdles for the tax payer in both contesting and settling the issues pertaining to any particular financial year.

In view of the above the High Court passed the following orders-

• The 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 return.
• If show cause notice is issued after the filing of annual returns, the same can be issued based on the filing of monthly returns.
• If show cause notice is issued after the filing of annual returns or after the commencement of the limitation period, the said notice shall be issued based on the annual returns with regard to the relevant financial year.
• No show cause notice can be clubbed and issued for more than one financial year since the same is impermissible in law.
• In these cases, without any jurisdiction, the impugned show cause notice/orders came to be issued/passed for more than one financial year, which is impermissible in law and hence, the same is liable to be quashed.

The High Court allowed the writ petitions and quashed the impugned show cause notice.