Legality of Issuing a Single Show Cause Notice for Covering Multiple GST Assessment Years

The practice of the GST Department issuing a single Show Cause Notice (SCN) for multiple assessment years has raised significant legal concerns. While this practice may be convenient to the GST Department, it often creates challenges for both the GST Department as well as taxpayers.

In some instances, the GST Department conducts audits spanning for several years and issues a consolidated SCN for all the audit periods. In other cases, when the deadline to issue SCN for a certain year has expired, the GST Department combines that expired period with a valid period in one single SCN attempting to validate the expired period. According to the GST Department, a single SCN can be issued for multiple assessment years as there is no explicit prohibition under Section 73 of the Act 2017.

However, the taxpayers argue that issuing a SCN for multiple financial contravenes the provisions of the GST Act. This practice creates practical challenges for taxpayers as each financial year may have distinct timelines, tax positions, exemptions, and statutory requirements. Consequently, taxpayers face substantial difficulties in preparing an appropriate response to a consolidated SCN, leading to escalated legal expenses and delays in the resolution of disputes. Additionally, adjudicating authorities also face difficulties in collecting and reviewing the information accurately, which can affect the outcome of the case. Therefore, the practice of issuing a single SCN for multiple assessment years makes the tax process more complicated and puts extra pressure on taxpayers.

The statutory provisions relating to the time limits for issuance of SCN and the passing the subsequent order

SCN is a document issued by the tax authorities asking a person to explain why a specific action should not be taken against them. It gives the person an opportunity to defend themselves before any legal action is taken for a violation of the law. The issuance of SCNs under the GST framework is primarily governed by Sections 73 and 74, (with Section 74A replacing them, effective from FY 2024-25) of the GST Act. Each of these sections 73 & 74 addresses different situations where tax assessments and SCNs are issued

Section 73 of CGST Act (up to FY 2023-24): This section deals with cases where determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any willful-misstatement or suppression of facts. Below is an extract of the relevant provisions regarding the timeline for the issuance of SCNs and the passing of orders;

• "Subsection 2 of Section 73: The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.
• Subsection 10 of Section 73: The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date of erroneous refund"

Section 74 of CGST Act [up to FY 2023-24]: This section pertains to determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts. Below is an extract of the relevant provisions regarding the timeline for the issuance of SCNs and the passing of orders;

• Subsection 2 of Section 74: The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.
• Subsection 10 of Section 74: The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund

A new Section 74A [FY 2024-25 onwards] has been introduced to replace Sections 73 and 74, providing for the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason pertaining to Financial Year 2024-25 onward. This section covers both fraudulent and non-fraudulent reasons. It establishes a common time limit for issuing demand notices and orders for tax demands from FY 2024-25 onwards, regardless of whether charges of fraud, willful misstatement, or suppression of facts are involved. However, it retains a higher penalty for cases involving fraud, willful misstatement, or suppression of facts. Below is an extract of the relevant provisions outlining the timeline for issuing SCNs and passing orders;

• Subsection 2 of Section 74A: The proper officer shall issue the notice under sub-section (1) within forty-two months from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within forty-two months from the date of erroneous refund.
• Subsection 7 of Section 74A: The proper officer shall issue the order under sub-section (6) within twelve months from the date of issuance of notice specified in sub-section (2)
• Provided that where the proper officer is not able to issue the order within the specified period, the Commissioner, or an officer authorised by the Commissioner senior in rank to the proper officer but not below the rank of Joint Commissioner of Central Tax, may, having regard to the reasons for delay in issuance of the order under sub-section (6), to be recorded in writing, before the expiry of the specified period, extend the said period further by a maximum of six months.

Summarised the above timeline section-wise in the table below

According to the above provisions, "Due Dates" for Issuance of SCNs and passing the Orders:

(a) Time Limit for issuance of SCN and Order under Section 73 of CGST Act 2017

(b) Time Limit for issuance of SCN and Order under Section 74 of CGST Act 2017

(c) Time Limit for issuance of SCN and Order under Section 74A of CGST Act 2017

Can a Single Show Cause Notice be issued for multiple assessment years under the GST Law?

The definitive answer is "NO" as per provisions of the GST Act, supported by recent judicial rulings, which establish that a single SCN cannot be issued for multiple assessment years due to the following reasons:

• Tax assessments: The GST Act mandates that taxpayers must assess their tax obligations, file requisite returns, and complete assessments annually for each financial year. This stipulation ensures that all transactions and corresponding tax assessments are conducted within the same year, ensuring that no obligations from prior years are carried over into the current year, except for necessary carryforwards. Each financial year is treated as a separate assessment year, promoting clarity and accountability in tax compliance. Therefore, the issuance of a single SCN for covering multiple assessment years constitutes a direct contravention of provisions of GST Act.
• Specific timelines: The provisions under Sections 73, 74 & 74A explicitly mandate that the officer must issue a SCN and pass an order within specified timelines (3/5 years) from the due date for furnishing of annual return for the financial year to which the tax due relates to. Therefore, the law explicitly requires the issuance of an SCN for each specific assessment year, with corresponding orders passed within the prescribed timeframe.

Illustrative Scenario: For instance, if the department issues a SCN for FY's 2017-18, 2018-19 and 2019-20 on 20.04.2024 under Section 73 of CGST act, the notice for FY 2019-20 would be valid, as it falls within the allowable timeline (last date is 31.05.2024 for FY 2019-20). However, the timeline for issuing a SCNs and passing an order for FY 2017-18 & 2018-19 would have already expired. Consequently, the SCNs for FY 2017-18 & 2018-19 are time bared. This scenario explicitly substantiates the assertion that a single SCN cannot be issued for multiple assessment years.

• Judicial Rulings: The practice of issuing a consolidated SCN has been scrutinized by various courts in India, which have consistently ruled against issuing a single SCN for multiple assessment years: these are: In a recent case, the High Court addressed this issue and stated

(a) M/s Veremax Technologie Services Limited vs. The Assistant Commissioner of Central Tax, Div-4, GST Commissionerate, Bengaluru [2024-VIL-1028-KAR]: In this case, the petitioner challenged a consolidated SCN issued for four financial years (2017-18 to 2020-21) under Section 73 of the CGST Act. The petitioner argued that the department cannot group multiple tax periods into one SCN, as each assessment year must be addressed independently. The Hon'ble High Court of Karnataka agreed with the petitioner, ruling that the consolidated SCN was flawed and contrary to the section 73 (10) of the GST Act. The Hon'ble High Court quashed the Consolidated SCN and the respondent is directed to issue separate SCNs for each assessment year in compliance with Section 73 of the CGST Act.

(b) M/s. Bangalore Golf Club vs. Assistant Commissioner of Commercial Taxes (Enforcement) - 22, Bengaluru [2024-VIL-1023-KAR]: The petitioner contested the issuance of consolidated SCN covering tax periods from 2019-20 to 2023-24. The Hon'ble High Court of Karnataka reinforced that the law stipulates that particular actions must be completed within a designated year, and such actions should be executed in accordance with the provisions of the law. Accordingly, the Hon'ble High court Accordingly, the impugned show cause notices are quashed and directed to the respondents to issue separate SCN for each assessment year in compliance with Section 73 of the CGST Act. The ruling emphasized that the law requires strict compliance with the time limits for each year, and bunching SCNs is impermissible.

(c) M/s. Titan Company Ltd vs. The Joint Commissioner of GST & Central Excise, Salem [2024-VIL-19-MAD]: in this case, the petitioner argued that Section 73 of the GST Act requires separate SCNs for each assessment year, and the bunching of SCNs for five financial years was a violation of the law, the petitioner also supported the Hon'ble Supreme Court ruling in case of the State of Jammu and Kashmir vs. Caltex (India) Ltd. which established that when an assessment involves multiple years, each year must be treated separately, with its own distinct period of limitation. On the other hand, Revenue department argued that there is no provision under Section 73 of the Act prohibiting the respondents from issuing bunching of SCNs. The Hon'ble High Court of Madras dismisses the Revenue's contention that there is no time limit contemplated under section 73 and clarified that 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 assessment year, and it would vary from one assessment year to another, and the period of three years ends from the date of furnishing of the annual return for the particular financial year, therefore issuing bunching of SCNs is against the spirit of provisions of Section 73 of the CGST Act. Accordingly, the respondent is directed to defer all the proceedings, until the date of disposal of the representation of the petitioner to split up the SCNs for each year separately.

Conclusion

In light of the above, the practice of issuing a single SCN for multiple assessment years is fundamentally inconsistent with the provisions of the GST law and established judicial precedents. Consequently, taxpayers may rely on these legal provisions and judicial rulings to challenge such consolidated SCNs and assert their rights.

Disclaimer: This article is intended for academic purposes only and should not be construed as professional advice. The information contained herein is based on the author's personal analysis and understanding of the subject matter.