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of <h1>Section 74(9)-(10) affect tax liability determination, not initiation; consolidated show-cause notice valid, assessment must be period-wise</h1> <h3>M/s. Sree Ananta Exim & M/s. Ramada Engineering Industry Versus Union of India & Ors.</h3> HC dismissed the petition, holding that subsections (9) and (10) of Section 74 relate to determination of tax liability, not the commencement of ... Issuance of SCN for a consolidated Financial Period 2017-18, 2018-19 and 2019-20 - it is contended that bearing in mind the language in which sub-sections (9) and (10) of Section 74 of the Act stand couched, the impugned notice which seeks to commence assessment for a consolidated period would not sustain - HELD THAT:- Sub-sections (9) and (10) of Section 74 of the Act are concerned with the determination of the amount of tax and the ultimate liability that may come to be raised. They are not concerned with the commencement of proceedings or the issuance of notice itself. Even though the notice may be for a consolidated period, the same would not relieve the respondents from independently assessing each financial period before quantifying a demand and passing a final order as contemplated under Section 74 of the Act. The respondents would statutorily be obliged to examine the facts as they obtain for each tax period and any explanation that the petitioner may choose to proffer. The right of the respondent to assess each tax period independently would not be effaced merely because a consolidated notice came to be issued. Petition dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a Show Cause Notice issued under Section 74 of the Central Goods and Services Tax Act, 2017, that purports to commence proceedings for a consolidated period covering multiple financial years is invalid. 2. Whether subsections (9) and (10) of Section 74 of the Act preclude initiation of proceedings by a notice that aggregates multiple tax periods, or require separate commencement and assessment for each financial year. 3. The applicability and effect of the principle in the cited precedent concerning severability of assessments when part of an assessment is invalid, and whether that precedent renders a consolidated notice wholly invalid. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of a consolidated Show Cause Notice under Section 74 Legal framework: Section 74 of the Act (and in particular subsections (9) and (10)) governs determination of the amount of tax, interest, penalty and the final quantification of liability arising from assessment proceedings initiated under that section. The statutory regime contemplates assessment and quantification of liability for tax periods. Precedent treatment: The judgment considers and relies upon the decision (referred to in argument) which addresses whether an assessment that covers both valid and invalid periods must be invalidated in toto or can be dissected and severed so that valid components survive. Interpretation and reasoning: The Court reasons that subsections (9) and (10) are concerned with determination and quantification of liability and not with the procedural question of commencement of proceedings by issuance of a notice. The Court holds that the mere issuance of a consolidated SCN for multiple financial years does not absolve the tax authority from its statutory obligation to assess each financial period independently when quantifying demand and passing final orders. The authority must examine facts and any explanations period-wise and frame separate assessment orders for each year before levy is finally quantified. Ratio vs. Obiter: Ratio - A consolidated notice under Section 74 is not per se invalid; the critical legal requirement is that assessment and quantification must be conducted separately for each tax period before demand is finalized. Obiter - Observations on procedural propriety and administrative convenience are incidental to the core holding. Conclusion: A Show Cause Notice that commences proceedings for a consolidated period is not invalid merely because it covers multiple financial years. The notice may stand, subject to the statutory obligation on the assessing authority to carry out independent, period-wise assessment and to pass separate orders for each financial year. Issue 2 - Effect of subsections (9) and (10) of Section 74 on the commencement and conduct of assessment proceedings Legal framework: Subsections (9) and (10) regulate determination and computation of tax liability and interest/penalty, establishing the content and substance of final assessment rather than prescribing the form of initiation. Precedent treatment: The judgment distinguishes the scope of these subsections from the procedural question of issuance of the notice. The Court interprets the statutory text to confine subsections (9) and (10) to liability computation. Interpretation and reasoning: Because subsections (9) and (10) pertain to the final determination of amounts, they do not nullify a consolidated initiation of proceedings. However, their substantive focus mandates that when the assessing authority moves from initiation to determination it must separate and examine period-specific facts and explanations and quantify liability for each period independently. Ratio vs. Obiter: Ratio - Subsections (9) and (10) do not invalidate consolidated commencement; they require independent assessment and separate orders at the quantification stage. Obiter - Any administrative preference or best practice to issue period-wise notices is not mandated by these subsections. Conclusion: Subsections (9) and (10) do not prevent issuance of a consolidated SCN but impose an obligation to conduct and record discrete period-wise assessments when quantifying demand and issuing final orders. Issue 3 - Application of the severability principle from the cited precedent to consolidated assessments/notices Legal framework: The severability principle (as discussed in the precedent considered) permits dissection of an assessment into constituent parts where items are separable and attributable to discrete assessable periods or transactions; where an assessment is an undivided lump sum covering a totality and one component is invalid, the whole may be vitiated. Precedent treatment: The Court analyses the precedent and accepts its core proposition that where assessment items are separable by period or transaction, the valid parts can be upheld and invalid parts excised. The Court reads that precedent as supportive of period-wise assessment rather than as a basis to invalidate a consolidated notice entirely. Interpretation and reasoning: The Court finds that the present statutory scheme and factual posture permit dissection of assessment by financial year. Even if a consolidated notice is issued, the assessing authority can and must separate receipts/sales and assess liability for each period. Therefore, the severability principle does not mandate declaring the entire proceeding void when part of the period might be contested or excluded; instead it confirms the obligation to assess period-wise. Ratio vs. Obiter: Ratio - The severability principle supports upholding consolidated initiation so long as the assessing authority performs discrete period-wise assessment and does not pass a single undifferentiated demand covering multiple years. Obiter - Extended hypotheticals regarding lump-sum, undissectable assessments are ancillary. Conclusion: The precedent is distinguished to the extent that it does not require nullification of a consolidated SCN where statutory and factual circumstances allow separation of assessments by financial year; the authority must apply severability in practice by framing separate assessment orders for each year. Relief and final determination Interpretation and reasoning: Applying the foregoing, the Court dismisses the challenge that the consolidated SCN is invalid solely because it covers multiple financial years. The Court directs that the assessing authority is statutorily obliged to examine each tax period independently and to frame separate assessment orders quantifying demand year-wise. Ratio vs. Obiter: Ratio - Dismissal of the challenge to the consolidated SCN and the mandatory direction to frame separate assessment orders for each financial year constitute dispositive rulings. Obiter - Commentary on the nature of initiation versus quantification and administrative practice is supplemental. Conclusion: The writ petition challenging the consolidated SCN is dismissed; the assessing authority may proceed with the initiation but must frame and pass separate assessment orders for each financial year, assessing liability independently for each period.
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