2026 (3) TMI 247 - HC - GST

Year wise limitation prevents consolidation of multiple tax periods into one show cause notice; notices must respect period by period timelines.

Question determined whether a Section 74 show cause notice may consolidate multiple financial years/tax periods; the court applied the statutory scheme ... Validity of a single show cause notice consolidating multiple financial years/tax periods under Section 74 of the CGST Act - fraudulent availment of input tax credit - limitation provisions in Sections 74(10) and 73(10) operate with reference to specific tax periods tied to the filing of returns. Consolidation of tax periods in show cause notice under Section 74 - HELD THAT: - The Court held that the statutory scheme of the CGST Act treats each financial year as a distinct tax period tied to the filing of returns, with separate limitation periods for demand and recovery. Sections 73(10) and 74(10) prescribe time limits running year by year, so aggregating different financial years with different due dates and limitation timelines in a single show cause notice is impermissible. The Court further held that the allegation of fraudulent availment of input tax credit does not create an exception enabling clubbing of multiple years into one consolidated show cause notice; the only consequence of fraud is the applicability of the longer limitation period where statutorily provided, but it does not authorise collapse of distinct tax periods into one notice. The Court applied these principles to the impugned notice issued for the period stated, finding that the respondents could not rely on the allegation of fraud to justify consolidation and thus the notice was invalid to the extent it consolidated multiple years. As a consequential and limited relief, the Court quashed the impugned consolidated show cause notice but granted liberty to the respondents to re-issue notice strictly in terms of Section 74, respecting the year-wise structure and limitation regime of the Act. [Paras 10, 14, 19] The consolidated show cause notice was quashed for impermissible clubbing of multiple financial years; respondents may re-issue notices, if appropriate, strictly in terms of Section 74 and its year-wise limitation regime. Final Conclusion: The petition is partly allowed: the consolidated show cause notice dated 10/01/2025 (relating to September, 2020 to July, 2023 - Financial years 2020-21 to 2023-24) is quashed for impermissible aggregation of tax periods; respondents retain liberty to issue notices conforming to the statutory year-wise scheme and limitation provisions. Issues: (i) Whether a show cause notice under Section 74 of the Central Goods and Services Tax Act, 2017 can consolidate or club multiple financial years/tax periods into a single notice, including in cases alleging fraudulent availment of input tax credit.Analysis: Section 74(1) and the limitation provisions in Sections 74(10) and 73(10) operate with reference to specific tax periods tied to the filing of returns for each financial year; tax period is defined under Section 2(106) and the statutory scheme contemplates year-wise assessment and recovery linked to annual returns. The separate time limits for demand and recovery run year by year, and provisions governing returns and assessment (including Sections 39, 44, 37 and provisions addressing payment and interest such as Section 50) reflect an annual/periodic structure. Consolidating different financial years in a single show cause notice would aggregate distinct tax periods with different due dates and limitation timelines, affecting the statutory time bar and the assessee's ability to respond period by period. The allegation of fraudulent availment of input tax credit does not, by itself, create a statutory exception permitting clubbing of separate tax periods into one consolidated notice where Section 74's year-wise limitation scheme applies.Conclusion: Issue (i): Clubbing multiple financial years/tax periods into a single show cause notice under Section 74 of the Central Goods and Services Tax Act, 2017 is not permissible; even where fraudulent availment of input tax credit is alleged, notices must comply with the year-wise period and limitation framework. The result is in favour of the assessee.