2025 (2) TMI 666 - HC - GST

Separate show cause notices required under Section 74(1) CGST for each year to protect limitation and appeal rights

Joint Commissioner (Intelligence & Enforcement) Thiruvananthapuram, Joint Commissioner Taxpayer Services, Kottayam, Versus M/s. Lakshmi Mobile Accessories.

The HC held that the proper officer must issue separate show cause notices under Section 74(1) of the CGST Act for each financial year where tax evasion ... Violation of principles of natural justice - Challenge to SCN on the ground of denial of opportunity to cross examine witnesses - alleged suppression of turnover during the financial years 2017-18 to 2023-24 - HELD THAT:- It is clear from the said statutory provisions that the power of the proper officer under Section 74 (1) is to determine whether any of the factors leading to tax evasion exist in relation to an assessee during any financial/assessment year and initiate proceedings under the said Section within the time frame contemplated under Section 74 (1) of the CGST Act. The said exercise is to be conducted in relation to each of the years in which such pre-conditions exist for the invocation of the power under Section 74 (1). While there may be cases where the data available with the proper officer is such that it suggests the existence of pre-conditions for more than one financial/assessment years, the proper officer should ideally issue separate show cause notices to cover the different financial/assessment years since the period available to the Department for adjudication of the show cause notices varies depending upon the due date for furnishing of annual return for that year. The proximate expiry of the limitation period under Section 74 (10) is only in relation to one of the six financial/assessment years, the contentions of the assessee and the opportunity available to an assessee for adducing evidence in relation to the other years cannot be rendered illusory by forcing upon the assessee the period of limitation prescribed under Section 74 (1) for passing the final order in relation to the earliest financial/assessment year [2017-18]. The statutory period available for an assessee to put forth its contentions against the show cause notice in an effective manner cannot be curtailed by an unnecessary act on the part of the Department in issuing a consolidated show cause notice that includes therein a financial/assessment year in relation to which the period for passing a final order expires earlier. There is yet another aspect of the matter. If a consolidated notice for various financial/assessment years is issued, the total amount of tax, penalty etc. determined as payable by the assessee may increase exponentially depending upon the number of financial/assessment years included in the consolidated notice. The determination of tax, penalty etc. would be in respect of all the financial/assessment years put together. That would go against the provisions of sub-sections (9) and (10) of Section 74 which specifically refer to the “financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates” while stipulating the last date for passing the adjudication order. A consolidated notice would also result in a consolidated adjudication order covering several financial/assessment years and in the event of it being adverse to the assessee, the fee/pre-deposit required to be paid by an assessee for preferring a statutory appeal would also be higher. Conclusion - The power of the proper officer is to determine tax evasion for each year separately, issuing show cause notices accordingly. Issuing a consolidated notice could prejudice the assessee's rights and lead to increased tax liabilities across multiple years, contrary to the principles of fairness in taxation. There are no reason to interfere with the impugned judgment of the learned Single Judge - appeal dismissed. The Kerala High Court considered a case where the State GST Department issued a show cause notice to demand differential tax, interest, and penalty from the respondent for alleged suppression of turnover during the financial years 2017-18 to 2023-24. The respondent challenged the notice, arguing that issuing a single consolidated notice for multiple financial years limited its ability to respond within the prescribed time limits and denied the opportunity to cross-examine witnesses. The Single Judge did not find merit in the challenge regarding cross-examination but agreed that issuing a single order covering all financial years could prejudice the respondent. The Single Judge allowed separate orders for each year, ensuring compliance with the time limits under the CGST Act.The Department appealed, arguing against separate orders for each financial year and stating that the respondent's delay in responding and requesting cross-examination would prolong the proceedings. The Court analyzed the relevant provisions of Section 74 of the CGST Act, emphasizing that the Act does not mandate consolidated notices for multiple years. The Court noted that the power of the proper officer is to determine tax evasion for each year separately, issuing show cause notices accordingly. The Court highlighted that issuing a consolidated notice could prejudice the assessee's rights and lead to increased tax liabilities across multiple years, contrary to the principles of fairness in taxation.The Court agreed with the Single Judge's decision, emphasizing the importance of fairness and adherence to statutory provisions. The Court dismissed the Writ Appeal, upholding the separate order for each financial year to ensure a fair and effective adjudication process under the CGST Act.