Goods & Services Tax (GST) in IndiaMadras High Court Ruling: Bunching Of Show Cause Notices Under GST Act Violates Legal Provisions

The Hon’ble Madras High Court in Titan Company Ltd. vs. Joint Commissioner of GST & Central Excise W.P.No.33164 of 2023, held that the issuance of the bunching of Show Cause Notice under Section 73 of the Central Goods and Service Tax Act, 2017 for different assessment years against the provisions of the Act, and directed the Respondents to consider the Petitioner’s representation to split the SCNs for each year independently.

 FACTS

The Petitioner, Titan Company Ltd (hereinafter referred to as “Petitioner”)., received bunching of Show Cause Notice dated 28.09.2023 (hereinafter referred to as “SCN”) from the GST authorities for five financial years spanning from 2017-18 to 2021-22 dated 28.09.2023. These notices were issued under Section 73 of the Central Goods and Service Tax Act, 2017 (hereinafter referred to as “CGST Act”), which deals with the determination of tax not paid, short-paid, or wrongly availed.

The Petitioner submitted a representation on 25.10. 2023, requesting the authorities to split the notices for each Assessment Years (hereinafter referred to as “A.Y.”) and adjudicate them individually. When this representation was not addressed, Titan Company approached the Hon’ble Madras High Court for relief.

The Petitioner has approached the Hon’ble Madras High Court filing a Writ Petition seeking for issuance of a Writ of Mandamus directing the first Respondent to consider and pass orders on the representation dated 25.10.2023 submitted by the Petitioner before proceeding with the adjudication of SCN dated 28.09.2023.

ISSUES BEFORE THE HIGH COURT

1. Whether the bunching of SCNs for multiple A.Y.s violates Section 73(10) of the Act?
2. Whether the issuance of consolidated SCNs circumvents the statutory limitation period for each financial year, particularly for earlier years where the time limit for adjudication was nearing expiry?

CONTENTIONS OF THE PARTIES

The Petitioners argued that bunching multiple years’ notices was contrary to law, which mandates that each financial year be considered separately when assessing taxes, particularly when the limitation period for such assessments varies by year.

The Petitioner contented that in terms of Section 73 of the CGST, bunching of SCNs is not permissible and it only provides for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or wilful misstatement or suppression of facts.

The Petitioner, represented by learned Senior Counsel, contended that the bunching of SCNs violated Section 73(10) of the CGST, which prescribes a three-year limitation period from the due date for furnishing the annual return for each financial year.

The Petitioner submitted that what the Respondents cannot do directly, they cannot do the same indirectly by issuing bunching of SCNs to extend the period of limitation.

The Petitioner relied on various judgements to support their contentions such as the decisions reported in State of Jammu and Kashmir and Others v. Caltex (India) Ltd, AIR 1966 SC 1350 and Kesar Enterprises Ltd., v. State of U.P and Others, (2011) 39 VST 184.

The Petitioner’s argued that every A.Y. should be treated independently, and issuing a consolidated notice for multiple years was an improper way of circumventing the limitation rules. Titan also pointed out that the GST Council, in its 49th meeting, had extended the limitation for different years individually, not collectively.

The Petitioner submitted that if the Respondents are allowed to issue bunching of SCNs, it would set a bad precedent and in future, it would pave way for issuance of SCNs even for the cases where limitation is not available.

The Petitioner also asserted that they have made a representation to split the SCNs and to adjudicate the same independently and the said representation is not disposed of till the date and hence, the Petitioner is constrained to approach the High Court by filing the Writ Petition.

The Respondents submitted that there is no provision under Section 73 of the CGST prohibiting the Respondents from issuing bunching of SCNs and in the absence of such provision, the Petitioner cannot come before this Court and submit that the Respondent is not empowered to issue bunching of SCNs.

The Respondent further submitted that in the event if this Court is inclined to order splitting up of bunching of SCNs issued by the Respondent, in which case, for the A.Y. 2017-18, the limitation is going to expire on 31.12.2023 and before that the Respondent has to finish the adjudication and pass orders.

Further the Respondent asserted that since in the present case, the Petitioner was enjoying the stay of proceedings granted by this Court for a period of 26 days, the said period may be excluded for calculating the period of limitation.

DECISIONS AND FINDINGS

The Hon’ble Madras High Court observed that the notice was issued under Section 73 of the CGST  for determination of the tax and therefore, the limitation period of three years as prescribed under Section 73(10) of CGST would be applicable. Therefore, the contention of the Respondent that there is no time limit contemplated under Section 73 of the CGST was held to be not correct by the court.

Further, the court also asserted that by issuing bunching of SCNs for five A.Y.s starting from 2017-18 to 2021-22, the Respondents are trying to do certain things indirectly which they are not permitted to do directly and the same is not permissible in law. If the law states that a particular action has to be completed within a particular year, the same has to be carried out accordingly. The limitation period of three years would be separately applicable for every A.Y. and it would vary from one A.Y. to another. It is not that it would be carried over or that the limitation would be continuing in nature and the same can be clubbed. The limitation period of three years ends from the date of furnishing of the annual return for the particular financial year. Therefore, the court observed that issuing bunching of SCNs is against the spirit of provisions of Section 73 of the CGST.

The Hon’ble Madras High Court also observed the relevancy and the principle of the Hon’ble Apex Court decision in State of Jammu and Kashmir and Others v. Caltex (India) Ltd, AIR 1966 SC 1350 would apply to this case, which held that where an assessment encompasses different A.Y.s, each A.Y. could be easily split up and dissected and the items can be separated and taxed for different periods.

Thus, the court quashed the bunching of the SCNs and directed the Respondent to consider the Petitioner’s representation to split the SCNs for each year separately. It also extended the limitation period for adjudicating the 2017-18 financial year until January 26, 2024, in light of the stay granted by the court for 26 days.

AMLEGALS REMARKS

The recent ruling by the Madras High Court is indeed significant for tax proceedings under the relevant Act. By establishing that the bunching of Show Cause Notices (SCNs) for different financial years violates the provisions of the Act, the court emphasizes the importance of adhering to the statute of limitations for tax assessments. This decision reinforces the principle that each financial year must be treated independently, ensuring that tax authorities cannot indirectly extend limitation periods.

Furthermore, the judgment highlights the taxpayer’s right to have assessments conducted in accordance with the law, underscoring the necessity of procedural fairness and transparency in tax matters. This sets a clear precedent that could influence future cases and promote more equitable practices in tax assessments.

For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com