2026 (3) TMI 295 - HC - GST

Consolidation of tax periods disallowed: fraud affects limitation but does not permit clubbing separate GST periods into one notice.

Whether a show cause notice under Section 74 CGST can consolidate multiple financial years was decided by reference to the statutory design tying tax ... Clubbing of period - Validity of issuing notice under Section 74 of the CGST Act - Consolidation of tax periods - allegation of fraudulent availment of input tax credit - clubbing of multiple financial years - time limits for demand and recovery under Sections 73(10) and 74(10) run separately for each financial year. Consolidation of tax periods in show cause notice under Section 74 is impermissible - HELD THAT:- The Court applied the statutory scheme of the CGST Act and earlier Division Bench decisions in M/s. Milroc Good Earth Developers Vs. Union of India & Ors. [2025 (10) TMI 867 - BOMBAY HIGH COURT] holding that tax liability is tied to returns for each tax period (financial year where annual returns govern assessment). The statutory limitation for demand and recovery (separate five-year period under the Act) operates year by year; aggregating different tax periods with distinct due dates and limitation periods would collapse the year-wise structure the statute prescribes and impair the assessee's ability to respond period by period. The Court relied on the reasoning in the cited Division Bench in Rite Water Solutions (India) Ltd. Vs. Joint Commissioner, CGST & Central Excise, Nagpur and Ors. [2025 (11) TMI 1939 - BOMBAY HIGH COUR]] which held there is no scope in the Act for consolidating various financial years/tax periods when issuing a show cause notice under Section 74. [Paras 12, 17] A consolidated show cause notice covering multiple financial years under Section 74 is impermissible; the impugned consolidated notice and related order are quashed. Allegation of fraudulent availment of input tax credit does not permit clubbing of multiple financial years - fraud affects limitation but not the permissibility of consolidation - HELD THAT: - The Court considered the submission that fraud permits consolidation and rejected it. While fraudulent availment may affect the applicable limitation period (allowing a five-year window for issuance in fraud cases), the statutory framework does not create an exception enabling clubbing of separate tax periods into a single show cause notice. The respondents cannot invoke alleged fraud to bypass the year-wise assessment and recovery scheme prescribed by the Act. [Paras 8, 11, 17] Allegations of fraudulent ITC availment do not permit clubbing of different financial years; consolidation on that ground is not allowed. Final Conclusion: The impugned show cause notice and the connected order are quashed and set aside. Respondents are at liberty to issue fresh notices strictly in accordance with the provisions of Section 74 and the year-wise statutory scheme; the respondents are permitted to seek revival of proceedings if higher judicial authority overturns the controlling view relied upon by this Court. Issues: Whether a show cause notice under Section 74 of the Central Goods and Services Tax Act, 2017 can validly consolidate or club multiple financial years/tax periods (including where fraudulent availment of input tax credit is alleged).Analysis: The Court examined the statutory scheme of the CGST Act, 2017 treating tax liability as tied to defined tax periods (monthly or annual returns) and noted the separate year-wise limitation framework established by Sections 73(10) and 74(10). The Court considered prior Division Bench decisions of this Court (Milroc Good Earth Developers and Rite Water Solutions) which held that the Act prescribes year-wise assessment and recovery and does not permit aggregation of different financial years with distinct due dates and limitation periods into a single consolidated show cause notice. The Court rejected the submission that allegations of fraudulent availment of input tax credit create an exception permitting consolidation, observing that Section 74 does not differentiate so as to allow clubbing of periods; rather, fraud affects the applicable limitation period but does not collapse separate tax periods into one proceeding. The Court also distinguished the contrary view of another High Court by noting that the Supreme Court's dismissal of a challenge to that view was in limine and did not decide the merits, and that subsequent binding decisions of this Court must be followed by the authorities below.Conclusion: The show cause notice dated 06/06/2025 and the order dated 31/10/2025 insofar as they purport to consolidate multiple financial years under Section 74 of the Central Goods and Services Tax Act, 2017 are quashed and set aside. The respondents are permitted to re-issue notices strictly in terms of Section 74 of the Central Goods and Services Tax Act, 2017 if otherwise permissible by law.