Single show-cause notice across multiple years invalid under GST Sections 73/74; separate adjudication per financial year required

HC held that issuance of a single show-cause notice covering multiple financial years is impermissible under Sections 73/74 of the GST Act because the limitation period (3/5 years) applies separately to each financial year as a distinct tax period. Clubbing years frustrates the statutory limitation scheme, prevents year-specific rebuttals, and results in jurisdictional overreach, rendering composite orders void ab initio. The court found the impugned composite SCN and order contravened statutory safeguards under Sections 73/74(10) and 136, and allowed the petition, directing separate adjudication tied to each financial year's tax period.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether a single show-cause notice and a single assessment order may be validly issued/ passed by the tax authority covering more than one financial year under Sections 73 and 74 of the GST Act.

2. Whether the statutory limitation scheme in Sections 73(10) and 74(10) and the related notice provisions (Sections 73(1)-(4) and 74(1)-(4)) require separate notices/ adjudications for distinct tax periods (financial years), and if clubbing/"bunching" of years frustrates statutory safeguards and causes prejudice to the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of a single show-cause notice/ single assessment order for more than one financial year

Legal framework:

2.1 Sections 73 and 74 govern determination of tax not paid/short paid/erroneously refunded and wrongly availed/ utilised input tax credit. Sections 73(1)/74(1) require service of a notice to show cause; Sections 73(2)/74(2) mandate issuance of that notice at least three/ six months prior to the time limit fixed under Sections 73(10)/74(10) for passing the order; Sections 73(3)/74(3) permit service of a statement for other periods which, subject to conditions in subsections (4), is deemed service of notice under subsections (1); Sections 73(10)/74(10) fix limitation for issuance of order at three/ five years respectively from the due date for furnishing the annual return for the financial year to which the tax relates.

Precedent treatment:

2.2 This Court earlier held that "bunching" is impermissible (Titan judgment) and that assessment years are separable for limitation purposes. The Division Bench of another High Court (Tharayil Medicals) held that independent show-cause notices are required for different years and warned against using a composite notice to circumvent shorter limitation under Section 73.

Interpretation and reasoning:

2.3 "Any period" in Sections 73(1)/(3) and 74(1)/(3) is read conjunctively with the defined term "tax period" (Section 2(106) - the period for which the return is required to be furnished). Returns under the GST scheme are filed monthly and annually. Thus a "tax period" means either a month (for monthly returns) or an entire financial year (for annual returns) or part thereof as legitimately determined by the department, but not a period extending beyond the relevant financial year where no prescribed return exists.

2.4 The statutory architecture contemplates limitation and notice timelines calculated separately per financial year: subsections (2) and (10) create discrete temporal safeguards for each financial year. Section 73(3)/74(3) contemplates issuance of a statement for subsequent tax periods only when an initial notice has been issued for a specified period and only where the same grounds are relied upon; that mechanism does not authorize an initial composite notice spanning multiple financial years.

Ratio vs. Obiter:

2.5 Ratio: The GST statutory scheme requires notices to be issued according to tax periods as defined, and limitation prescribed in subsections (10) applies per financial year; accordingly, issuing a composite show-cause notice/assessment order covering more than one financial year is contrary to the statutory scheme and invalid. Obiter: Practical examples of prejudice (compounding, amnesty schemes) illustrate consequences but are ancillary to the legal ratio.

Conclusions:

2.6 There is a statutory bar on issuing a show-cause notice for more than one financial year; hence a single assessment order spanning multiple financial years is impermissible and vulnerable to quashing for being beyond the authority conferred by Sections 73/74.

Issue 2: Prejudice and jurisdictional consequences of bunching (impact on limitation, remedies, and substantive rights)

Legal framework:

2.7 Sections 73(2)/74(2) (notice timing), 73(10)/74(10) (limitation), 73(3)/(4)/74(3)/(4) (statement deemed notice), Section 2(106) (tax period), Section 2(97) (return), Section 128 (power to waive penalty/fee by notification), and Section 138 (compounding) - together structure timelines, notice modalities and post-notice reliefs.

Precedent treatment:

2.8 The Titan decision and Tharayil Medicals emphasise that limitation runs separately for each assessment year and that composite notices can lead to colourable exercises of power and prejudice the assessee's statutory rights, including distinct defenses year-wise.

Interpretation and reasoning:

2.9 Clubbing multiple years into one notice often results in issuance at the fag end of limitation for the earliest year, forcing the assessee to respond prematurely and potentially preventing collection of year-specific evidence. Clubbing also obstructs year-specific reliefs - compounding under Section 138 or availing amnesty schemes introduced later - because liability for one year can be tied to demands for others in the composite notice

2.10 Where elements of fraud/wilful misstatement are present for some years but not others, a composite notice may improperly bring simpler cases within the broader penal regime (Section 74) or extend the longer limitation period to years properly governed by the shorter period (Section 73), effecting a jurisdictional overreach.

Ratio vs. Obiter:

2.11 Ratio: Bunching that frustrates statutory limitation and prevents year-specific defence or relief operates as a jurisdictional defect rendering the order void ab initio. Obiter: Practical administrative convenience argued by revenue (e.g., treating "any period" as multi-year) is not persuasive in light of textual limits and prejudice to assessee rights.

Conclusions:

2.12 Bunching causes real prejudice and can amount to a colourable exercise of power; when a composite order frustrates the limitation scheme or statutory safeguards it is void for want of jurisdiction and liable to be quashed. The authority may re-issue fresh notices/year-wise consistent with statute.

Cross-references and subsidiary findings

3.1 The meaning of "tax period" (Section 2(106)) is pivotal: tax periods derive from prescribed returns (monthly or annual), and absent any prescribed multi-year return, a show-cause notice cannot validly extend beyond a financial year.

3.2 Section 73(3)/74(3) allows deemed notice for additional tax periods only where an initial notice for a tax period exists and the same grounds are relied upon; it does not permit the initial notice itself to span multiple financial years.

3.3 Administrative convenience or a literal reading of "any period" as permitting multi-year initial notices is subordinate to the statutory limitation scheme and the separate character of each assessment year; the Court prefers a construction that preserves year-specific limitation and procedural safeguards.

Final legal conclusions and orders (ratio)

4.1 The GST Act permits issuance of show-cause notices only according to tax periods as defined (monthly or annual); no show-cause notice can be clubbed to cover more than one financial year.

4.2 A single assessment order covering multiple financial years, passed without separate adjudication per year, frustrates the statutory limitation scheme and is impermissible and void to the extent it covers years beyond the tax period of the initial valid notice.

4.3 The proper course is to quash composite orders issued without jurisdiction and permit the tax authority to issue fresh show-cause notices and proceed year-wise in conformity with Sections 73 and 74 and related provisions.

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