2025 (12) TMI 1188 - HC - GST

Composite GST show-cause notice clubbing multiple financial years u/ss 73/74 held invalid; proceedings quashed, fresh notices allowed

Clubbing multiple tax periods/financial years in a single composite show-cause notice under ss. 73/74 of the CGST/KGST Acts was held impermissible because ... Correctness of clubbing/consolidation/bunching/combining of multiple tax periods/financial years in a Single/Composite Show cause notice issued under Section 73 / 74 of the CGST/ KGST Act, 2017 - requirement to interfere with the impugned Show cause notice dated 30.09.2025 issued by the 4th respondent to the petitioner for the tax periods/financial years from 2019-20 to 2023-24 under Section 74 of the CGST/ KGST Act, 2017 or not. Whether clubbing/consolidation/bunching/combining of multiple tax periods/financial years in a Single/Composite Show cause notice issued under Section 73 / 74 of the CGST/ KGST Act, 2017 is permissible and valid in law? - HELD THAT:- When the entire statutory scheme i.e., from registration to accounts, from returns to annual reconciliation, from assessment to limitation, all operates on a financial-year basis, there is no scope for issuing a consolidated show cause notice covering multiple unrelated financial years. The CGST/KGST Act simply does not recognize such a mechanism; each year constitutes a separate assessment universe; each year’s transactions and ITC must be judged independently; each year has its own limitation; and each year must be subject to its own show-cause notice. Accordingly, on a holistic reading of the CGST/KGST Act, a composite/consolidated show cause notice would be patently without jurisdiction apart from being contrary to the statutory architecture/framework and unsustainable in law. Thus, the recent judgments of the Division Bench of Bombay High Court in the cases of Milroc Good Earth Developer [2025 (10) TMI 867 - BOMBAY HIGH COURT] in which, the judgments of the Delhi High Court in the cases of Ambika Traders [2025 (8) TMI 315 - DELHI HIGH COURT] and Mathur Polymers [2025 (9) TMI 112 - DELHI HIGH COURT] have been considered and taken note of by the Bombay High Court which has come to the conclusion that a consolidated show cause notice under Section 73 / 74 of the CGST Act is illegal and impermissible in law in addition to holding that the communication / circular dated 16.09.2025 issued by the respondents is contrary to law and the said statutory provision. The issue is accordingly answered in favour of the petitioner/tax payer/assessee by holding that clubbing/ consolidation/ bunching/ combining of multiple tax periods/financial years in a Solitary/Single/Composite Show cause notice issued under Section 73/74 of the CGST/KGST Act is illegal, invalid, impermissible and without jurisdiction or authority of law and contrary to the provisions of the CGST/KGST Act. Whether the impugned Show cause notice dated 30.09.2025 issued by the 4th respondent to the petitioner for the tax periods/financial years from 2019-20 to 2023-24 under Section 74 of the CGST/ KGST Act, 2017 warrants interference by this Court in the present petition? - HELD THAT:- In the instant case, a perusal of the impugned Show cause notice dated 30.09.2025 will indicate that the same encompasses and pertains to multiple tax periods/financial years, viz., from 2019-20 to 2023-24, which is impermissible in law and consequently, the impugned Show cause notice and all further proceedings pursuant thereto are also vitiated and deserve to be quashed reserving liberty to the respondents to initiate any action/proceedings in accordance with law. The issue is accordingly answered in favour of the petitioner/tax payer/assessee by holding that the impugned Show cause notice dated 30.09.2025 issued by the 4th respondent to the petitioner for the tax periods/financial years from 2019-20 to 2023-24 under Section 74 of the CGST/KGST Act is illegal, invalid, impermissible, arbitrary and without jurisdiction or authority of law and contrary to the provisions of the CGST/KGST Act and the impugned show cause notice and all further proceedings, orders, notices pursuant thereto deserve to be quashed by reserving liberty in favour of the respondents to initiate proceedings in accordance with law. The impugned show-cause notice at Annexure-A dated 30.09.2025 issued by respondent No. 4 and all further proceedings, orders, notices etc., pursuant thereto initiated/to be initiated by the respondents are hereby quashed - petition allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether a solitary/composite show-cause notice issued under Sections 73/74 of the CGST/KGST Acts can validly club/consolidate/bunch multiple tax periods/financial years into one proceeding. (ii) Whether the impugned show-cause notice covering financial years 2019-20 to 2023-24 under Section 74 suffered from lack of jurisdiction/invalidity on account of such clubbing, warranting writ interference and quashing, with liberty to issue fresh notices year-wise. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Validity of composite show-cause notice clubbing multiple financial years under Sections 73/74 Legal framework (as discussed by the Court): The Court examined the statutory scheme of the CGST/KGST Acts as reflected in provisions governing maintenance/retention of accounts (Sections 35-36), periodic and annual returns (Sections 37, 39 and 44), time limits tied to annual return dates, and the determination provisions under Sections 73 and 74, including the limitation architecture in Sections 73(2), 73(10), 74(2) and 74(10). The Court also referred to Section 16(4) to note that input tax credit entitlement is financial-year bound and subject to year-specific cut-offs. The Court treated the statutory structure as being built around financial-year-specific 'assessment universes'. Interpretation and reasoning: The Court held that the architecture of GST compliance and adjudication is intrinsically tied to distinct financial years: registration compliance, accounts, return filing (monthly/quarterly), and the annual return and reconciliation are structured year-wise, and limitation for adjudication is pegged to the due date for furnishing the annual return for the specific financial year to which the demand relates. A composite notice 'collapses' this framework and creates jurisdictional illegality because (a) the limitation clock and end-point under Sections 73(10)/74(10) vary year-to-year; (b) the statutory requirement that notices be issued at least three/six months prior to the limitation end cannot be meaningfully applied across multiple years in one notice without curtailing statutory time for some years; and (c) the assessee's right to furnish year-wise explanations, reconciliations and legal defences is prejudiced, resulting in violation of principles of natural justice. The Court further reasoned that allowing composite notices risks blurring the distinct statutory regimes of Section 73 (non-fraud; shorter limitation) and Section 74 (fraud etc.; longer limitation), enabling an impermissible 'colourable exercise of power' by effectively extending limitation for years that might otherwise fall under Section 73. The Court also rejected reliance on a departmental communication/circular asserting permissibility of composite notices, finding it contrary to the Act's scheme. The Court additionally addressed the maintainability objection, holding that where the defect goes to inherent jurisdiction, a writ can lie even against a show-cause notice because the jurisdictional fact necessary to invoke Sections 73/74 is absent when the notice itself is issued in a manner not recognized by the statute. Conclusion: The Court conclusively held that clubbing/consolidation/bunching/combining of multiple tax periods/financial years in a single/composite show-cause notice under Sections 73/74 is illegal, invalid, impermissible and without jurisdiction, being contrary to the statutory framework of the CGST/KGST Acts. Issue (ii): Whether the impugned notice for FY 2019-20 to FY 2023-24 warranted quashing Legal framework (as applied): Applying the above construction of Sections 73/74 and the year-specific limitation and adjudication scheme, the Court examined the impugned notice's coverage across multiple financial years under Section 74. Interpretation and reasoning: The Court found, on the face of the notice, that it encompassed multiple financial years (2019-20 to 2023-24) and therefore fell within the jurisdictional prohibition declared under Issue (i). Because the defect was foundational-issuance of a composite notice not contemplated by the Act-the notice and all consequential proceedings were held vitiated. The Court therefore exercised writ jurisdiction to prevent continuation of proceedings initiated without authority of law. Conclusion: The Court held that the impugned show-cause notice and all further proceedings pursuant thereto were illegal, invalid, arbitrary and without jurisdiction, and accordingly quashed them, while reserving liberty to the authorities to initiate fresh proceedings in accordance with law (i.e., by issuing separate/independent notices as permissible under the statutory scheme).