Can Dept. Issue One GST Notice Under Sections 73/74 Of CGST Act For Multiple Years? Bombay HC Refers Issue To Larger Bench

The Bombay High Court has referred to a Larger Bench the question of whether the GST Department can issue a single consolidated show cause notice covering multiple financial years under Sections 73 and 74 of the CGST Act.

Section 73 of the CGST Act deals with the determination of tax not paid or short paid in cases not involving fraud or suppression, while Section 74 governs such determinations in cases involving fraud, wilful misstatement or suppression of facts.

A Bench of Justices G. S. Kulkarni and Aarti Sathe noted a clear cleavage of opinion among High Courts on the issue and held that an authoritative determination is necessary.

The court noted that while some High Courts have upheld such consolidated notices, others have held them to be impermissible, leading to divergent judicial views.

The controversy raises, inter alia, the following questions:

• Do the time-limit provisions under Sections 73(10) and 74(10) indirectly restrict the department from issuing a single consolidated notice for multiple years under Sections 73(1)/(3) and 74(1)/(3)?
• Do Sections 73 and 74 of the CGST Act themselves prohibit issuing one consolidated show cause notice for multiple financial years?
• What is the effect of Section 160 of the CGST Act on consolidated show cause notices issued under Sections 73/74?
• Does the decision in Milroc Good Earth Developers correctly hold that the department cannot club multiple financial years in a single notice under Sections 73(1)/(3) and 74(1)/(3)?
• What is the effect of the Supreme Court's ruling in Mathur Polymers under Article 141 of the Constitution on this issue?

After examining the statutory scheme, the Court prima facie found no restriction in the law preventing issuance of a consolidated notice covering different tax periods.

“In the context of the GST law which is evolving and considering the nature in which it operates, and its legal characteristics, in our opinion not only on first principles as also on the plain application of law and on the principles on which GST law is founded, there ought not to be any embargo on the department to issue a consolidated show cause notice covering different periods. The following discussion would aid our conclusion:,” the court observed.

However, the bench noted that a coordinate Bench of the Court in Milroc Good Earth Developers had taken a contrary view, holding that show cause notices cannot club multiple financial years. In view of this divergence, the Court held that judicial discipline required the issue to be placed before a Larger Bench and refrained from finally deciding the question on merits.

The petitions were filed by over 30 assessees, including Rollmet LLP, Shemaroo Entertainment Limited, Everest Fleet Private Limited, Renault India Pvt. Ltd., and State Bank of India, challenging show cause notices issued for multiple financial years in a single proceeding.

The petitioners contended that the limitation under Sections 73(10) and 74(10) applies separately to each financial year and, therefore, a consolidated notice is without jurisdiction. They relied on the Bombay High Court's Goa Bench ruling in Milroc Good Earth Developers and similar decisions of other High Courts, including Kerala, Madras, and Karnataka.

On the other hand, the Revenue argued that the CGST Act does not prohibit issuance of a consolidated notice, so long as the limitation for each financial year is independently satisfied. It was contended that such notices do not prejudice taxpayers and are consistent with the statutory framework. Reliance was placed on contrary rulings of the Delhi High Court and Allahabad High Court, which have upheld such notices.

Examining the provisions, the Court observed that Sections 73 and 74 appear to be a code by themselves governing demand and recovery, and that the limitation prescribed under sub-section (10) applies to the passing of orders and does not, prima facie, restrict the issuance of show cause notices covering multiple periods.

The Court also observed that reading a prohibition against consolidated notices into the statute would amount to adding words to the law, which the legislature has consciously not provided.

Finding that the controversy raises substantial questions on the law, the court directed that the matter be placed before the Chief Justice for the constitution of a Larger Bench to settle the controversy.

For Petitioner: Advocates Abhishek A. Rastogi, Pooja M. Rastogi, Minal Songire with Aarya More 

For Respondent:  Advocate Ram Ochani along with Advocate Sangeeta Yadav