GST: High Court Quashes Composite SCN Covering Multiple Financial Years; Bunching Impermissible u/s 73/74

Can the GST department issue one single show cause notice having multiple financial years? The Madras High Court, in a recent ruling, quashed a composite SCN and assessment order, calling it impermissible under the GST law.

The Dispute started when the GST Department issued a single show cause notice (SCN) and passed one combined assessment order covering six financial years (2017-18 to 2022-23) to the petitioner company, Ms R A And Co. The petitioner challenged this order, as the company argued that “bunching of Show Cause notices” or sending a single show cause notice for more than one financial year is not valid.

The company stated that the clubbed SCN makes it hard for the assessee to collect evidence and documents, defend the case year-wise, and benefit from any amnesty or settlement schemes that apply to specific years. The company argued that issuing a bunching of notices/orders would only create unnecessary hardships for the company. The company also referred to Section 73 and 74 of the GST Act, which outline a limitation for issuing notices and passing assessment orders for each and every financial year.

The Court observed the judgement passed in the M/s Tharayil Medicals case by the Kerala High Court, which stated that ” independent show cause notice be issued to the assessee for each different year of assessment while proceeding under Section 74.”

After observing the judgement in this case, the High Court ruled that:

• The GST Act allows only for the issuance of a show cause notice based on the tax period.
• Issuing a single show cause notice for more than one financial year is not allowed in law.
• SCNs issued before filing the annual return can be issued based on the filing of monthly returns.
• SCNs issued after the filing of annual returns or after the commencement of limitation must be issued based on the annual returns of the relevant financial year.

Therefore, the High Court ruled in favour of the company and quashed the order passed for more than one financial year.