Consolidation of tax periods and show cause notice under Section 74 notice quashed, reissue permitted subject to statutory limits

Consolidation of multiple financial years for issuing a show cause notice and validity under the CGST statute was examined; the court held that a show cause notice issued without complying with statutory issuance principles is liable to be quashed, and permitted re-issuance strictly in accordance with the statutory provision. The court rejected application of a merger-of-judgments concept where the Supreme Court dismissed a petition in limine, and held that subsequent contrary High Court rulings within the State bind lower authorities; consequence: authorities must follow the later state High Court view unless legally impeded.

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Issues: Whether a show cause notice under Section 74 of the Central Goods and Services Tax Act, 2017 may validly consolidate or club multiple financial years/tax periods in a single notice, or whether notices must be issued year-wise in accordance with the statutory scheme and limitation periods.

Analysis: The statutory scheme ties tax liability to defined tax periods based on returns filed for each period, and prescribes separate limitation timelines for assessment and recovery for each financial year under Sections 73(10) and 74(10) of the CGST Act, 2017. Consolidation of different financial years in a single show cause notice aggregates years with distinct due dates and limitation timelines, thereby collapsing year-wise procedural steps and impairing the statutory structure for assessment and recovery. Prior Division Bench decisions of this Court (as considered) interpreted the Act to require year-wise treatment and disallowed consolidated show cause notices; the decision of another High Court permitting consolidation was distinguished on the basis that it did not address these year-wise limitation and procedural consequences. The respondents are granted liberty to re-issue notices strictly in terms of Section 74 if no other legal impediment exists and subject to applicable limitation rules.

Conclusion: The impugned show cause notice consolidating multiple financial years is quashed and set aside; the challenge is partly allowed in favour of the assessee with liberty to the revenue to re-issue notice consistent with the year-wise statutory scheme and limitation provisions of the CGST Act, 2017.

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