The Bombay High Court ruled that clubbing multiple financial years in a single show cause notice under Section 74 of the CGST Act is invalid and without authority. It reiterated that GST law mandates separate, year-wise evaluation of tax obligations.
MUMBAI: The High Court of Bombay ruled that combining multiple financial years into a single show cause notice under Section 74 of the CGST Act is legally impermissible and lacks jurisdiction.
The Court upheld its previous Division Bench decisions in M/s. Milroc Good Earth Developers v. Union of India and Rite Water Solutions (India) Ltd. v. Joint Commissioner, CGST, confirming that the GST framework necessitates a year-wise assessment of tax liability, and that merging tax periods contravenes the statutory scheme.
Factual Backgrounds:
In this matter, the petitioner contested a show cause notice issued under Section 74 of the CGST Act, 2017, which alleged the suppression of taxable value and short payment of CGST. The notice in question encompassed a composite period from April 2018 to March 2024, thereby consolidating multiple financial years into a single notice.
The petitioner argued that such grouping of tax periods was not permissible under the CGST Act and was inconsistent with the statutory framework governing assessment, limitation, and recovery. He referred to Division Bench judgments from the Bombay High Court, which had explicitly determined that issuing a single show cause notice for several financial years is beyond jurisdiction.
The respondents countered the petition by citing a judgment from the Delhi High Court that allowed for consolidated notices in cases involving allegations of fraud spanning multiple years. They further asserted that this judgment had reached finality following the Supreme Court’s dismissal of a Special Leave Petition (SLP).
Issue:
Whether a single show cause notice under Section 74 of the CGST Act, covering multiple financial years or tax periods, is legally viable within the GST statutory framework?
Section 74 of the CGST Act:
It permits the issuance of a show cause notice only when a GST officer has reason to believe that a GSTIN holder has engaged in fraud, deliberate misrepresentation, or concealment of facts.
This provision lays down the legal framework for addressing intentional irregularities in GST returns, including short payment, non-payment, wrongful refunds, or improper input tax credit claims.
Under this section, the concerned GST officer is empowered to complete adjudication within a period of five years from the year in which the discrepancies are detected. The officer may issue a show cause notice demanding the unpaid or short-paid tax and wrongly availed credit.
Additionally, interest is recoverable, along with a penalty ranging from 15% to 50% of the tax amount or excess credit, depending on how promptly the taxpayer settles the dues.
Observations of the Court:
The High Court ruled that combining multiple financial years into a single show cause notice under Section 74 of the CGST Act is legally impermissible and lacks jurisdiction.
The Court upheld its previous Division Bench decisions in M/s. Milroc Good Earth Developers v. Union of India and Rite Water Solutions (India) Ltd. v. Joint Commissioner, CGST, confirming that the GST framework necessitates a year-wise assessment of tax liability, and that merging tax periods contravenes the statutory scheme.
The Court dismissed the respondents’ reliance on the Delhi High Court judgment, stating that the dismissal of the SLP in limine does not establish merger and does not supersede the binding precedents of the jurisdictional High Court. Since the Bombay High Court had later adopted a conflicting position, the authorities within the State were obligated to adhere to this.
Consequently, the challenged show cause notice dated 30.05.2025 was annulled and set aside, with permission granted to the department to issue new notices strictly in line with Section 74, on a financial-year basis, while adhering to limitations and other legal stipulations.
Case Title: M/s. Marfani Steel Impex, through its proprietor Mohammed Irfan Marfani Vs. The Principal Commissioner, Central Goods and Services Tax & Central Excise, Nagpur & Ors
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