Single Composite Show Cause Notice for Multiple Years not Permissible Under GST Law: HC

The appellant/writ petitioner was served with a show cause notice under Section 74 of the CGST/SGST Act dated 5.8.2024 proposing to initiate proceedings under Section 74(10) of the CGST/SGST Act for the assessment years 2017-2018, 2018-2019, 2019-2020, 2020-2021 and 2021-2022. In the aforesaid notice, the proper officer concluded that, for different assessment years, the appellant/writ petitioner had applied incorrect HSNs, and therefore, the rate of tax applied is incorrect and thus proposed a reassessment finding that there is a wrong application of tax rate at Rs. 21,13,080/- (CGST – Rs. 10,56,540/ – SGST- Rs. 10,56,540/-).

Arguments of the Taxpayer

Smt. Krishna K., the learned counsel appearing for the appellant, primarily contended that the composite show cause notice issued by the proper officer will certainly act in the detriment to the interest of the assessee, especially since, the proper officer will proceed to assess the petitioner in accordance with the proposal contained in the show cause notice for different assessment years, for which, the time prescribed for the completion of the proceedings under Section 74 of the Act is yet to expire.

In support of her contentions, the learned counsel relied on the decision of this Court in Joint Commissioner (Intelligence & Enforcement) v. Lakshmi Mobile Accessories [(2025) 171 taxmann.com 214 (Kerala)], wherein it was held by the Division Bench, wherein one of us was a party [DR. A.K.Jayasankaran Nambiar (J)] that the proper officer cannot issue consolidated orders by clubbing into different assessment years for the purpose of determining the liability under Section 74 of the Act.

It is further pointed out that the High Court of Karnataka in M/s Bangalore Golf Club (Supra) had taken a view that a composite show cause notice by clubbing different assessment notices cannot be issued. It is further pointed out that the Madras High Court in M/s Titan Company Limited v. Joint Commissioner of GST [W.P. No.33164 of 2023] also has taken a similar view.

On the other hand, Sri. V.K. Shamsudheen, the learned Senior Government Pleader appearing on behalf of the respondents, relied on the decision of the Division Bench of the Bombay High Court in Riocare India Private Limited v. Assistant Commissioner CGST [(2025) 26 Centax 339 (Bom.)] to contend to the proposition that there is nothing in the CGST/SGST Act, 2017, prohibiting the proper officer from issuing the show cause notice by clubbing different assessment years.

Analysis of the Court

Distinct time limit prescribed for completion of the proceedings in Each year

Sub-section (2) of Section 74 mandates that the notice under sub-section (1) of Section 74 be issued at least six months prior to the time limit prescribed under sub-section (10) for issuance of the order. Turning to sub-section (10) of Section 74, the proper officer is required to issue notice under sub-section (9) within a period of five years from the due date of furnishing the annual return.

A cumulative reading of Section 74(1), (2) and (10) leaves no room for any doubt that each assessment year can be proceeded separately by the assessing officer or the proper officer as the case may be for the purpose of determining whether there is any willful misstatement or suppression of facts. The time limit prescribed under sub-section (10) of Section 74 of the Act shows that the order under sub-section (9) has to be issued within a period of five years from the due date of furnishing of the annual return for the financial year to which the tax is paid or short paid or input tax credit wrongly availed or utilised. This means that for each assessment year, the time limit prescribed for the completion of the proceedings is distinct and different.

Court against the practice of issuing composite orders under Section 74

In the light of the principles laid down in Lakshmi Mobile Accessories (supra), the court found that sub section (1) of Section 74 requires the proper officer to arrive at a subjective satisfaction regarding any specified factors which lead to evasion of tax. Thus, the assessee will be entitled to raise separate defence for each assessment year.

The court already deprecated the practice of the assessing officer from proceeding to complete the assessment under Section 74 by issuing composite orders.

Main issue

The pertinent question before the court is, can the proper officer issue a composite show cause notice and then proceed to pass separate orders for each assessment year. This issue was not covered by the court while deciding the case Lakshmi Mobiles Accessories (supra).

Separate show cause notices for each assessment year

When we read sub-sections (9) and (10) of Section 74, which specifically refer to “the financial year to which the tax not paid or short paid or input tax wrongly availed or utilised relates” while passing the final order of adjudication, it presupposes that independent show cause notice be issued to the assessee for each different years of assessment while proceeding under Section 74. This was held by the court because, as they noted earlier, the assessee can raise a distinct and independent defence to the show cause notice issued in respect of different assessment years. In other words, the entitlement to proceed and assess each year being separate and distinct, and further the time limit being prescribed under the Statute for each assessment year being distinct, the court saw no reason as to why we should not hold that separate show cause notices are required before proceeding to assess the assessee for different years of assessment under Section 74.

There is yet another reason why one should hold that separate show-cause notices are issued for different assessment years. There may be cases where proceedings are initiated in the guise of a show cause notice under Section 74, wherein, on facts, the case of the assessee will fall under Section 73 of the CGST/SGST Act. The court found that insofar as the time limit prescribed under Section 73(10) of the CGST/SGST Act is concerned, it is three years instead of five years and further, the aspect of fraud, willful misstatement and suppression do not arise for consideration in proceedings under Section 73. Thus, by issuing a composite notice, the assessing authority cannot bypass the mandatory requirement of Section 73 to complete the assessment by falling back on a larger period of limitation under sub-section (10) of Section 74.

If such a recourse is permitted, then certainly the said action would be a colourable exercise of the power conferred by the statute and will offend express provisions of the CGST/SGST Act qua limitation. This reason would also prompt us to hold that in cases where the assessing officer finds that an assessee is liable to be proceeded either under Section 73 or under Section 74 for different assessment years, a separate show cause notice has to be issued. Still further, since a proper officer needs to issue a show cause notice prior to 6 months to the time limit prescribed under sub-section (10) of Section 74, if a composite notice is issued, the assessee will be prejudiced inasmuch as the availability of a lesser period to submit a proper and meaningful explanation. This is also a strong indicative factor which would prompt us to hold in favour of the assessee.

Accordingly, the appeal was allowed in the Assessee’s favour.