Consolidated Multiple Years GST Show Cause Notices: Is this the Legislative Intent?

Consolidated Multiple Years GST Show Cause Notices: Is this the Legislative Intent?

I.The Issue at Stake

A foundational question has long troubled India’s GST regime: Can GST authorities issue a single Show Cause Notice (SCN) covering multiple financial years and pass a composite assessment order for several years at once? While various High Courts have addressed this in the past, the Madras High Court’s judgment in R.A. and Co. v. Additional Commissioner of Central Taxes stands out for its detailed, surgical analysis of the statutory limitations enshrined into the CGST Act. In unequivocal terms, the answer is a resounding “No” to such clubbing. This write up offers an interpretative deep dive into Sections 73 and 74 of the CGST Act, as set forth by the High Court, and explores additional dimensions that, while not directly adjudicated, are essential for understanding the broader legal and practical ramifications for businesses, professionals, and the tax administration.

II.Statutory Provisions—A Close Examination

A.Section 73: Non-Fraud Cases

• Section 73(1): Empowers authorities to serve a notice “for any period” to a taxable person.
• Section 73(10): Sets a three-year deadline “from the due date for furnishing of annual return for the financial year to which the tax… relates.”
• Sections 73(3) & (4): Allow for separate statements for “other periods” (tax periods) to be deemed as notices, provided the underlying grounds are the same.

B.Section 74: Cases Involving Fraud or Suppression

• Section 74(1): Mirrors Section 73(1) but for cases involving fraud, wilful misstatement, or suppression of facts.
• Section 74(10): Sets a five-year deadline from the due date of the annual return for the relevant financial year.
• Sections 74(3) & (4): Adopt an identical approach for additional periods, strictly tethered to specific “tax periods.”

C.Section 2(106): “Tax Period” Defined

• “Tax period” is defined as the period for which a GST return is required either monthly or annually, and not a multi-year block

III. Judicial Interpretation: The Madras High Court’s Categorical Clarifications

1. “Any Period” Means “Tax Period” And Not Multiple Years

The Court rejected the department’s argument that “any period” could include a block of years. It held that “any period” must be harmonized with “tax period” as defined in Section 2(106); thus, it refers to a single month or year, but never to more than one financial year, Paras 14-20]. 2.Each Financial Year Is a Distinct Unit Sections 73(10) and 74(10) establish that limitation periods are tied to the due date of the annual return for the specific financial year, making each year a self-contained unit for assessment and demand. Clubbing multiple years distorts this limitation scheme; the limitation is not “carried over” or “continuing” to justify clubbing. 3.SCNs Must Be Year – or Month-Specific The statutory bedrock lays down Sections 73(3)/(4) and 74(3)/(4) which further envisions a primary notice for a period, with separate statements (deemed notices) for other “tax periods” if the grounds are identical. This was also prevailing at par in pre-GST era for consecutive and recurring period demands. Neither provision exists for a composite notice spanning multiple financial years since Annual Return itself is not provided for multiple years and nor could be inferred. 4.Judicial Support and Precedents

• State of J&K v. Caltex (India) Ltd. (SC): Each assessment year can and must be split and adjudicated separately
• Titan Company Ltd. (Mad HC): Bunching notices is impermissible; each year’s limitation and liability stand alone
• Tharayil Medicals (Ker HC): Composite SCN violates both the right to year-wise defense and the statutory limitation scheme.

IV. The Annual Return: The Temporal Anchor of GST Adjudication

1. The Annual Return as Legal Finality

Sections 73(10) and 74(10) tie the limitation period for issuing orders directly to the due date for the annual return for that financial year. Each financial year is, thus, a legally distinct, self-contained unit for assessment, demand, and limitation. The annual return is not a mere formality—it is the statutory trigger and closure point for departmental action. “…the GST Act considered each and every financial year as separate unit, due to which, the limitation has been fixed for each and every financial year separately. When such being the case, clubbing more than one financial year, for the purpose of issuance of show cause notice, would not be considered as in accordance with the provisions of Section 73/74 of the GST Act.” — Madras High Court [para 10]

2. Why the Annual Return Matters?

• Finality & Closure: The annual return crystallizes all filings into a comprehensive year-end statement.
• Limitation Period: Authorities have three (Section 73) or five (Section 74) years from the due date of the annual return for that year, while ensuring certainty for taxpayers and preventing indefinite exposure.
• Year-Specific Rights: Each year’s facts, defenses, and eligibility for schemes (amnesty, compounding) differ; the law recognizes this by requiring year-wise scrutiny.

3. Clubbing Defeats the Annual Return’s Purpose

Clubbing multiple years into a single SCN would “frustrate the limitation scheme and prevent assessee from giving year-specific rebuttals, which would result in jurisdictional overreach”, Para 27]. If a composite SCN is issued toward the end of the limitation for the earliest year, it unfairly compresses the response time for subsequent years, despite the department having more time for later years. It artificially enhances the jurisdiction by giving a longer period due to clubbing.

4. Practical Implications

• Amnesty & Compounding Blocked: Composite orders prevent taxpayers from settling or compounding liabilities for individual years.
• Appeals & Defenses: Defenses valid for one year may not apply to others, making composite SCNs procedurally unfair.
• No Administrative Shortcut: Administrative convenience cannot override statutory command; the law mandates year-wise proceedings to protect taxpayer rights.

5. The Court’s Categorical Holding

“…if the annual return is filed, the entire year would be considered as a tax period and accordingly, the show cause notice shall be issued based on the said annual returns… No show cause notice can be clubbed and issued for more than one financial year since the same is impermissible in law.” — Madras High Court, para 28 a.Analysis: The Rationale Behind the Categorical Bar The GST Act’s structure is inherently period-specific and linked to return, liabilities, limitations, penalties, even prosecution or amnesty, are all linked to the “tax period.” The legislative intent is unmistakable: ensuring clarity, accountability, and procedural fairness. Composite notices would undermine these objectives, seed confusion, and dilute statutory safeguards. Administrative convenience, however desirable, cannot trump the express requirements of law. b.Conclusion: A New Dawn for GST Litigation This landmark ruling marks a pivotal moment for both statutory interpretation and the protection of taxpayer rights under GST. While it is true that divergent views might have emerged from different jurisdictions, the legislative intent is now unambiguously crystallized through a careful reading of the statutory provisions and the judicial precedents discussed above, as well as the interpretative perspectives offered in this newsletter. Drawing from the Madras High Court’s detailed analysis, as well as supporting judgments from other courts, the following positions stand established:

• Each financial year is an independent unit for adjudication: The very structure of Sections 73 and 74 of the CGST Act, bolstered by the definition of ‘tax period’ in Section 2(106), mandates that limitation, assessment, and enforcement are all intrinsically year-specific.
• Clubbing of multiple years in a single Show Cause Notice or order is impermissible: The High Court has categorically held that such practice not only distorts the statutory limitation scheme but also obstructs the taxpayer’s ability to present year-wise defences and avail scheme-specific remedies like compounding or amnesty.
• Administrative convenience cannot override legislative command: No matter how expedient it may seem for the department to issue composite notices, the law is explicit and unambiguous—each period must be dealt with separately to ensure procedural fairness and legal certainty.
• Judicial and statutory harmony: The interpretation of the phrases “any period” and “tax period” must be consistent with the period-specific structure of the Act, as the courts have repeatedly emphasized. This harmonization is essential to uphold the principles of natural justice and safeguard taxpayer rights.

In summation, this judgment is far more than a procedural clarification; it is a clear reaffirmation of the foundational principles of GST with clarity, fairness, and strict adherence to statutory boundaries. The GST regime, though relatively young, now stands on firmer ground, offering both taxpayers and the administration a roadmap for lawful and equitable adjudication going forward.

Team, AMLEGALS

Dislaimer – This analysis is intended solely for academic and informational purposes. It does not constitute or substitute formal legal advice or an opinion on any specific set of facts or circumstances. The views expressed are based on a review of the cited judicial decisions and the relevant statutory provisions. Readers are encouraged to consult their legal advisors for guidance tailored to their individual situations.