TaxTMI 
TaxTMI 
Introduction
This research article analyses the imperceptible difference between the law of India (governing mining lease holders and businesses dealing with royalty) and the actual justice served to them.
Delayed judicial judgements leading to doctrinal confusion in constitutionality of the concept of levy of tax on royalty. Consequently causing severe consequences to the end taxpayer and causing authorized bodies to weaponize these loopholes to levy heavy taxes on the taxpayer.
The GST framework in India carries multiple lacunas and regulatory gaps where the tax payer suffers.
Research Problem
How can a taxpayer be penalized for:
- liability disputed for decades,
- demand raised by defective notices,
- extended limitation periods?
Administrative Practices Undermining Taxpayer Rights
- Consolidation of Multiple Financial Years
The practice of issuing show cause notices and orders for multiple financial years is escalating and so are the high court decisions against the authorities issuing the same. The consolidation is legally impermissible, intrinsically prejudicial to the taxpayer, and fundamentally strips the Proper Officer of jurisdiction. Under the GST regime, the entire lifecycle of taxpayer compliance and departmental scrutiny is strictly compartmentalized by financial years. The maintenance of books of accounts (Section 35), the filing of periodic and annual returns (Section 39 and Section 44), the statutory time limit for the availment of Input Tax Credit (Section 16(4)), and the ultimate adjudication of demands (Sections 73 and 74) are all legally tethered to specific financial years.
Most critically, Section 74(10) of the CGST Act mandates that the proper officer shall determine the amount of tax, interest, and penalty within a period 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 . The legislature intentionally and explicitly linked the limitation period to the specific due date of the annual return for that particular financial year. The Department cannot be permitted to use a composite notice as a subterfuge to revive periods that would otherwise be extinguished by the statute of limitations.
In the seminal judgment of Titan Company Ltd., Represented by its Authorized Signatory Mr. P. Manivannan Versus The Joint Commissioner of GST & Central Excise, The Additional Commissioner of GST & Central Excise - 2024 (1) TMI 619 - MADRAS HIGH COURT, the Hon'ble Madras High Court comprehensively struck down the departmental practice of 'bunching' SCNs. The Court observed that Section 73(10) categorically fixes the limitation for making an assessment based on specific financial years.
The Hon'ble Bombay HC in Parinee Realty Pvt Ltd vs UOI
'Issuing a consolidated show cause notice covering various financial/assessment years would cause prejudice to an assessee.'
Recognizing the gravity of this jurisdictional overreach, the Bombay High Court in a connected matter, Min Chem India v. UOI, referred to the fundamental question of whether Sections 73(10) and 74(10) absolutely prohibit the issuance of consolidated notices to a Larger Bench. Crucially, the Court directed that coercive actions against assessees facing such flawed notices be stayed.
The principle was further solidified by the Hon'ble Karnataka HC in M/s Pramur Homes and Shelters v. UOI.
The department is mandated to issue SCNs and orders separately for each year under consideration, and not for multiple years combined into one order.
- Mechanical Invocation of Section 74
Section 74 of the CGST Act, 2017, which talks about determination of tax not paid by reason of fraud, casts a burden of proof on the Proper Officer to establish mens-rea on the taxpayer.
The invocation of Section 74 requires proof of active, deliberate concealment with the specific, premeditated intent to evade tax.
The Central Board of Indirect Taxes and Customs (CBIC) itself has explicitly recognized this crucial distinction. CBIC Instruction No. 05/2023-GST dated 13.12.2023 provides strict, binding guidelines for field formations regarding the invocation of Section 74.
The Department mechanically invokes Section 74 to avail extended limitation period and impose harsher penalty, without establishing mens rea (guilty mind). This is contrary to law and settled judicial precedents. It is a bedrock principle of taxation law that an assessee cannot be accused of fraud, willful misstatement, or deliberate suppression for not discharging a tax liability on a transaction whose very constitutional validity and legal classification was unsettled and pending before a nine-judge bench of the Supreme Court.
- Reliance on Third-Party Data Without Verification
Another concerning trend has emerged, the authorities in practice rely on the information given by the 3rd party and never supply the documents to the taxpayer for verification, rebuttal or explanation; no opportunity of re-verification is given to the taxpayer, this approach violates the principle of natural justice, and fails to follow the due procedure of law.
As famously articulated by Lord Denning in the case of Kandaa v. Govt. of Malaya, that 'He must know what evidence has been given and what statements have been made affecting him; and then he must be given a fair opportunity to correct or contradict them.'
It is a trite law that no adverse civil consequences can be imposed upon a person based on material that has been kept concealed from them. The failure to furnish relied-upon documents renders the adjudication a nullity.
In, Jeewan Kukreja v. DCIT, the ITAT, Raipur Bench, confronted an assessment built entirely on data extracted from an undisclosed third-party digital server.
As third-party digital records are weaponized against a taxpayer by withholding the primary evidence the authority commits a fatal breach of the audi alteram partem rule.
The Hon'ble Supreme Court of India has consistently held that the disclosure of relied-upon material is non-negotiable.
Similarly, in T. Takano case, the Supreme Court held:
'A quasi-judicial authority has a duty to disclose the material that has been relied upon'
So, it is mandatory on the part of the GST authorities to supply the taxpayer with all relevant documents.
Furthermore, in CIT v. Amitabh Bachchan, the Supreme Court, affirming the ruling in M/s. Electro House, established that any breach of the principles of natural justice strikes at the very legality of the entire proceedings.
Defective Service of Notices and communication
A recurring issue in the procedure is the service of the notices and orders and hearing intimations. The legitimacy not merely depends on the procedural enforcement but the practical effectiveness. In practice, tax authorities frequently merely upload system-generated reminders and hearing notices onto the GST common portal. No physical copies of these critical notices, nor the relied-upon documents, ever reach the taxpayer. The failure of the Department to physically communicate these notices deprives the taxpayer of any meaningful opportunity to participate in the adjudication proceedings.
Where taxpayers remain unaware of pending proceedings, adjudication may predictably, capitalizing on the taxpayer's enforced absence due to the lack of effective communication, proceed to pass an ex-parte Order.
When a business is facing severe operational constraints, requiring the taxpayer to continuously monitor a digital portal without push notifications or physical service violates the very spirit and legislative intent of Section 169. Uploading to the portal (Section 169(1)(d)) should not be weaponized by adjudicating authorities as a loophole to secure an ex-parte confirmation of massive tax demands without ensuring actual awareness on the part of the taxpayer.
The legal distinction between merely uploading a document and effectively communicating it has been judicially clarified by the Hon'ble Madras High Court in Sharp Tanks and Structurals Private Limited v. The Deputy Commissioner, held:
'mere uploading in the portal by no stretch of imagination would satisfy the requirement of communicating to the assessee.'
The Court explicitly directed that, especially in cases where a business is inactive, facing cancellation, or operations are disrupted, authorities must ensure that orders and critical notices are served through physical post to the residential or business address, in addition to portal uploads.
Legal and Judicial Framework -BY SUPREME COURT
- Mineral Area Development Authority v. Steel Authority of India (MADA, 2024)
The question of whether 'royalty' constitutes a tax in itself or a consideration for the supply of a service has been one of the most fiercely litigated constitutional issues in Indian legal history over the last three decades. In the landmark 1989 judgment ofIndia Cement Limited Versus State Of Tamil Nadu - 1989 (10) TMI 53 - Supreme Court, a seven-judge Constitution Bench of the Supreme Court explicitly held that 'royalty is a tax'. If royalty is constitutionally defined as a tax, it cannot simultaneously be treated as consideration for a taxable service under the GST regime.
Because of conflicting judgments, the issue was referred to a nine-judge Constitution Bench in 2011.
This judgement overruled a 35 year old judgement that had commanded royalty as tax since 7-judge bench in India Cement (1989) . licensing the states to levy and renew the magnified tax demands. Subsequently, the proceedings were revived after a month, only to make the effect retrospective penalizing taxpayers with the tax from 2005.
- Min Chem India v. Union of India (2026) - The Consolidated Notice Controversy
The question whether judicial authorities can issue consolidated show cause notices and orders bunching multiple financial years has been raised by Indian high courts (Madras, Kerala, Karnataka, Bombay, Delhi, Allahabad). The question is the use of the word 'period' instead of financial year, and its constitutionality. It is perhaps the most unresolved question unanswered by the supreme court.
The supreme court in this case held,
'The proceedings, accordingly, be placed by the Registry before the Hon'ble the Chief Justice for constitution of Larger Bench for a decision on the aforesaid questions of law....In all matters where interim orders have been passed, such orders shall continue till the Larger Bench decides the issues.'
The consequences of this unresolved conflict are faced by end taxpayers. Small taxpayers without legal resources are disproportionately affected, because of lack of resources.
Consequences for Small businesses
There are multiple consequences faced by small businesses because of delayed judicial precedents, like
- Legal uncertainty
- False tax claims causing financial burden
- Extended limitation period due to falsely framed fraudulent causing spanning over for years
- Lack of awareness and legal support leaving them vulnerable
- Reputation and business investment risks
Recommendations
As all the small businesses were negatively affected by the sudden retrospective taxation and unspoken judicial judgements due to limited resources.
There must be a phased implementation of taxes finding a middle way and the government should also provide legal aid and support systems for small taxpayers.
Judiciary should also act on the ambiguity caused and clarify the constitutionality of consolidated notices and orders.
CBIC must issue binding circulars directing GST authorities to act accordingly and not misuse power of issuing notices and orders by falsely framing the grounds like fraud and consolidation of multiple financial years.
GST authorities should mandatorily serve orders and notices physically to the taxpayer according to section 169 of the CGST Act.
Conclusion
The landscape of GST enforcement has escalated to a remarkably intense degree, where the authorities have been issuing notices on the basis of grounds and mechanical enforcement of law. As long as these practices persist, 'the consequences of this unresolved conflict are faced by end taxpayers' - and law, without justice, remains only law in name.
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This article is written by Shruti Sarva (Associate, Accorg Consulting) and reviewed by CA Harshaditya Kabra (Partner, Accorg Consulting).