2025 (10) TMI 867 - HC - GST

Consolidated show-cause notices across multiple years quashed; Sections 73/74 five-year limitation precludes clubbing distinct tax periods

M/s. Milroc Good Earth Developers, Mariposa Beach Grove Versus Union of India, Additional Director, Directorate General of India (DGGI), Pune, Additional Commissioner of Central Tax, Goa Commissionerate, Joint Commissioner of Central Tax, Goa Commissionerate, State of Goa., The Assistant Commissioner, Central Goods & Services Tax, Deputy Director, Directorate General Of Goods and Service Tax Intelligence (DGGI) Zonal Unit Pune, The Commissioner, Central Goods & Services Tax Margao.

HC held that consolidated show-cause notices covering multiple financial years were without jurisdiction and quashed. The court found GST assessment is ... Issuance of single SCN for multiple periods - clubbing or bunching of different financial years - levy of GST on construction services provided to the landowner - reversal of alleged ineligible ITC under Section 17 of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017 - Reverse charge mechanism - HELD THAT:- From the perusal of the entire Scheme, it is evidently clear that the statutory provision for assessment of tax for each financial year expect the Show Cause Notice to be issued at least 3 months prior to the time limit specified in Section 73(10) and 74(10) of the Act, for issuance of assessment order as sub-section (10) provide that the proper officer shall issue the order within a period of five years from the due date for furnishing of annual Return for the financial year to which the tax not paid/short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous Return. Thus, there is limitation prescribed for demand of tax and its recovery. The Act of 2017, therefore involve a definite tax period, based on the filing of the Return, which can be either monthly or annual Return and if the assessment is based on annual Return, the tax period shall be the relevant financial year. In the light of the statutory scheme, it is found that there is no scope for consolidating various financial years/tax period which is attempted by the impugned Show Cause Notices assailed in the Petition. The observations of the Co-ordinate Bench in Titan Company Limited [2024 (1) TMI 619 - MADRAS HIGH COURT] were gainfully reproduced where the bunching of the show cause notices was held to be against the spirit of the provision of Section 73 of the Act. The observations merely being of primary nature without appreciating the provisions in the Act of 2017 and Rules made therein, and recording a finding that there is no prohibition in issuance of notice calling upon payment of tax for different financial years, since the Petition before the Division Bench called for quashing of the demand notice referring to different financial years, but in any case the Court expressed the prima facie opinion and recorded that there is no issue of limitation as contemplated under Section 74(10). In any case the Court refused to show indulgence and directed the Petitioner to face the show cause notice and therefore the Division Bench did not express it final opinion. The action of Respondent No.2 in issuing consolidated show cause notices for multiple assessment years is without jurisdiction and since it is a judicial overreach is quashed - petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the proper officer can issue a single consolidated show cause notice under Sections 73/74 of the CGST Act, 2017 covering multiple tax periods/financial years ('bunching' or 'clubbing'), or whether notices must be issued and adjudicated year-wise for each tax period. 2. Whether issuance of consolidated show cause notices for multiple financial years frustrates the limitation scheme in Sections 73(10)/74(10) (and related provisions) and thereby results in jurisdictional overreach rendering proceedings void ab initio. 3. Whether the petitioner should be relegated to file responses to the show cause notices when the vires/competence of issuing consolidated notices is a threshold jurisdictional question. ISSUE-WISE DETAILED ANALYSIS Issue 1: Permissibility of consolidated show cause notices across multiple tax periods Legal framework: The definitions of 'assessment' (Section 2(11)), 'return' (Section 2(97)), 'tax period' (Section 2(106)), the statutory scheme for returns and assessment in Chapters IX, XII and XV, Sections 37, 39 (including monthly/quarterly/annual returns), Section 44 (annual return), Section 59 (self-assessment), and the specific provisions for determination of tax in Sections 73 and 74 (including subsections dealing with notices, statements and limitation) govern the procedure for demand and adjudication. Rules (e.g., Rule 101) and audit provisions (Section 65) are relevant to periods of audit. Precedent treatment: The Court followed and relied on High Court decisions (Madras, Karnataka, Kerala, Andhra Pradesh) holding that each financial year/tax period is a separate unit for limitation and adjudication and that 'bunching' of show cause notices is impermissible. The reasoning of the Constitution Bench decision quoted in prior authority that assessments encompassing different years can be split and taxed for different periods was endorsed. The Court distinguished decisions or prima facie observations (e.g., certain Division Bench observations) that permitted consolidated notices where limitation was not an issue or in fraud cases (e.g., Delhi High Court in Ambika Traders), noting factual differences and that some such orders were not final or involved different factual matrices (fraud, DGGI searches, linking transactions across years). Interpretation and reasoning: The Court interpreted 'tax period' and the statutory architecture to mean that tax liabilities are determined in relation to the tax period for which the return is furnished; annual returns make the relevant tax period the financial year. Sections 73(3)/74(3) and (4) refer to issuance of statements for subsequent tax periods but presuppose a notice issued for a particular tax period and require that grounds relied upon for other periods be the same as in the earlier notice. The limitation periods in Sections 73(10)/74(10) are fixed with reference to each financial year separately (3/5 years as applicable), and therefore the statute contemplates separate temporal units. Consolidated notices across financial years would undermine the separate limitation calculus, impede year-specific defenses, and curtail the assessee's opportunity to present distinct rebuttals per year. The Court also observed that Rule 101 permitting audit for a financial year or multiples thereof is an exceptional provision for audit and does not authorize conflating adjudication and limitation across years. Ratio vs. Obiter: Ratio - The statutory scheme requires tax determination and adjudication to be linked to discrete tax periods (usually financial years when annual returns apply), and consolidated show cause notices across different tax periods are impermissible where they frustrate separate limitation periods and year-specific adjudication. Obiter - Observations distinguishing cases involving proven, connected fraud spanning years (where linking may be necessary to establish fraud) and comments on prima facie views in some precedents. Conclusions: The Court concluded that there is no scope in the CGST Act, 2017, for clubbing various financial years/tax periods into a single show cause notice for adjudication under Sections 73/74 where such clubbing would frustrate the separate limitation scheme and impede year-specific defenses. Consolidated show cause notices as issued in the impugned matters were held to be beyond jurisdiction and thus void. Issue 2: Effect of consolidated notices on limitation scheme and jurisdictional competence Legal framework: Sections 73(10) and 74(10) prescribe the time limit (three/five years) from the due date for furnishing the annual return for the relevant financial year within which the adjudicating authority must issue orders; Sections 73/74 (and their subsections) set out notice/statement mechanics; Section 74A (as amended by Act 15 of 2024) governs post-2023-24 periods. Precedent treatment: The Court relied on persuasive High Court authorities (Madras, Kerala, Karnataka, Andhra Pradesh) and prior Supreme Court principle (assessment years separable) to hold that limitation operates year-wise and cannot be subverted by composite notices. It distinguished precedents where consolidated treatment was upheld or prima facie permitted on grounds that limitation was not in issue or where facts involved contiguous fraudulent transactions spanning years (and some were not finally adjudicated by higher courts). Interpretation and reasoning: The Court reasoned that the statutory fixation of limitation separately for each financial year implies legislative intent that each year be a distinct unit of adjudication. Consolidated notices compress the time available to the assessee to respond with year-specific explanations, risk application of a longer limitation period improperly (e.g., invoking Section 74's five-year limit to circumvent Section 73's three-year limit), and can amount to a colourable exercise of power. Where grounds for liability differ across years or where an assessment for a given year would properly fall under Section 73 (non-fraud) rather than Section 74 (fraud), composite notices could improperly extend limitation. The Court also observed that the 2024 amendment segmented applicability of Sections 73/74 and introduced Section 74A for later periods, reinforcing temporal distinctness. Ratio vs. Obiter: Ratio - Consolidated notices that affect applicability of different limitation periods, or which preclude year-specific adjudication, amount to jurisdictional overreach and are void ab initio. Obiter - The Court's comments acknowledging limited situations (e.g., demonstrable, connected fraud across years) where linking years may be relevant, but noting that such factual matrices were not present in the petitions before it. Conclusions: Issuance of consolidated show cause notices covering multiple assessment years which frustrate the limitation scheme prescribed in Sections 73/74 is beyond the proper officer's jurisdiction and void; separate notices and adjudication per tax period are required to preserve statutory safeguards. Issue 3: Prematurity and need to allow administrative response when jurisdictional issue is raised Legal framework: Principles of judicial review of administrative action and writ jurisdiction where threshold jurisdictional questions may be decided prior to compelling compliance with administrative processes; Section 73/74 notice mechanics and the procedural requirement that notice be issued sufficiently before the limitation expiry. Precedent treatment: The Court considered the Revenue's preliminary objection that the petitions were premature and that petitioners should first respond to the show cause notices; it drew distinction from cases where courts declined interference on prima facie grounds and allowed departmental adjudication to run its course. Interpretation and reasoning: The Court treated the competence to issue consolidated notices as a jurisdictional question going to the authority's power; where competence is challenged, compelling the petitioner to respond would be inappropriate. Because the threshold legal question - whether consolidated notices are permissible at all - directly affects the officer's jurisdiction, the Court exercised writ jurisdiction to decide that question rather than remanding the parties to the administrative process. Ratio vs. Obiter: Ratio - When the challenge raises a pure question of jurisdiction (here, competency to issue consolidated show cause notices across tax periods), judicial determination is appropriate before requiring the assessee to respond to the notice. Obiter - Comments on the general prudence of allowing departmental adjudication where jurisdictional facts are not in dispute. Conclusions: The petitions were properly entertained notwithstanding the Revenue's contention of prematurity because the issue raised was jurisdictional; the Court declined to relegate petitioners to administrative response on the impugned consolidated notices. Overall Disposition The Court held that the issuance of consolidated show cause notices for multiple assessment years-when such consolidation frustrates the statutory limitation scheme and prevents year-specific adjudication-is without jurisdiction and constitutes judicial overreach; the consolidated show cause notices under challenge were quashed and set aside. The Court distinguished authorities relying on different factual matrices (notably fraud spanning years) and treated those precedents as inapplicable to the present facts.