SCN of multiple years under section 74

[SUSHIL BANSAL]

Dera experts,

Our client received one SCN u/s 74 of FY 18-19 & 19-20 for the alleged fake purchase & thereby proposed disallowance of ITC & liability for Int & penalty. In the summary of DRC 01, the tax amount has been shown in FY 18-19 columns, though our alleged fake purchases are in FY 19-20. Now if we reply that during FY 18-19 we have not made any such purchases & then in assessment whether we will be taxed in FY 18-19 or 19-20. & if the dept does not issue a separate SCN for FY 19-20 before 30.09.2025, then whether our matter is over.

plz guide

[Ramanathan Seshan]

Dear sir,

If in FY 2018-19, your client had not made any such purchases but the summary in SCN or DRC-01 mentions the totality of tax demand under the year, your first line of defence should be factual error.

You should clearly state in your reply that no such purchase was made in FY 18–19, the invoices relied upon relate to FY 19–20.

This mismatch of facts has implications for the SCN, as it establishes a liability for the wrong year. Given that the limitation period for each financial year runs independently under Section 74, that becomes very relevant.

Having a single SCN for several years is not illegal per se (e.g. FY 18-19 & 19-20), but it must have clear year-wise breakup and limitations for each of this amount. However:

1. The DRC-01 summary does not state the period correctly, and

2. The SCN is silent as to FY 19-20 or does not furnish a separate analysis by year,

therefore, the demand for FY 19-20 may be voided due to lack of specificity and natural justice.

The Kerala HC in Leo Distributors and Titan Company (Madras HC) stressed every FY should be subject to separate evaluation, and “bundling” without breakup is in conflict with Article 300A and Section 74(10) timelines.

Consequently, if FY 19-20 is not clearly included in the above, then a fresh SCN for that financial year must be issued before 30.09.2025 (i.e. 6 months prior to the expiry of 5 years from the due date of GSTR-9 for FY 19-20). 

3. If the department does not issue a separate SCN for FY 19-20 before 30.09.2025, is the matter closed? 

It is indeed - as far as FY 19-20 is concerned, the limitation under Section 74(10) applies strictly. The last date by which a valid SCN must be issued for FY 19-20 is 30.09.2025 (assuming GSTR-9 was due on 31.03.2021).

Hence, in case no valid SCN covering FY 19-20 was issued before that, the department would have lost its jurisdiction to raise demand for that year unless the original SCN can be interpreted correctly to read in FY 19-20 within it (which, from the facts you stated, it clearly does not). 

Important: Even Madras and Bombay HCs, which otherwise support the department’s composite SCN approach, have held that time-barred demands cannot be enforced, and annexures must clarify year-wise dues.

Regards,

S Ram

[Guuruswamy Raman]

Recent Madras High Court Order - SCN to be issued year wise and no to be clubbed

[K.lakshmipati rao]

Dear Mr. Sushil Bansal,

1. For tax periods prior to October 2020, it is mandatory to issue Form GST DRC-01A under Rule 142(1A) of the GST Rules, 2017, before issuing show cause notice in Form GST DRC-01 under Section 73 or Section 74 of the CGST Act. Since the impugned adjudication pertains to period 2018-19 to 2019-20 [up to January 2020]. It is mandatory to issue intimation in Form DRC-01A for the Tax period.
2. The above provision was amended by Notification 79 of 2020 (Central Tax) dated 15.10.2020.

AI Summary

Single Show Cause Notice Under GST Section 74 Must Separate Financial Years for Valid Tax Demands A client received a single show cause notice (SCN) under GST Section 74 covering two financial years for alleged fake purchases and disallowance of input tax credit. The SCN and accompanying summary incorrectly attribute tax demand for the earlier year, while the disputed transactions pertain to the later year. Legal advice emphasizes that each financial year must be assessed separately with clear year-wise breakups due to independent limitation periods under Section 74. A combined SCN lacking specificity may violate principles of natural justice and lead to invalid demands for the later year. Courts have held that if a separate SCN for the later year is not issued before the statutory deadline, the department loses jurisdiction to raise demands for that year. Additionally, procedural rules require issuance of specific notices before SCNs for periods prior to October 2020. Thus, failure to issue a timely SCN for the later year effectively closes the matter for that period.