Composite GST Show Cause Notices For Multiple Financial Years Maintainable: Allahabad High Court

The Allahabad High Court has recently held that a composite show cause notice issued under Sections 73 and 74 of the GST Act covering multiple financial years is legally maintainable, rejecting the contention that adjudication proceedings must be confined to a single “tax period” or financial year.

A Bench of Justice Saumitra Dayal Singh and Justice Indrajeet Shukla ruled that the statutory scheme expressly permits the Proper Officer to issue statements for periods beyond those mentioned in the original notice and that courts cannot introduce a limitation not found in the text of the statute.

“The legislature has specifically authorised the Proper Officer to, in addition to issuing notices under Section 73(1)/74(1), issue further statements with respect to other periods beyond that specified in the notice itself. Once that specific provision has been made, there is no room to introduce the concept of adjudication proceedings being confined to a unit of assessment/FY. To do that would be to do violence to the plain language of Section 73 (3)/74(3) and 73(4)/74(4) of the Acts.", the court said.

It added, " Standard rule to be applied in matters of interpretation of statutes being that every word used by the legislature be given its full and natural meaning unless a conflict arises, we find no occasion to restrict the scope of Section 73(3)/ 74(3) and 73(4)/74(4), by introducing an alien concept of unit of assessment/FY to adjudication proceedings.”

The petitioners had argued that since “tax period” is defined under Section 2(106) as the period for which returns are required to be furnished, whether monthly, quarterly or yearly, proceedings under Sections 73 and 74 could not span multiple Financial Years. Rejecting this submission, the Court held that the legislature consciously used broader language.

“The legislature has carefully avoided the use of the words 'tax period' under those sections as may have required a further reference of FY to which they may relate. Even though, by way of a general rule, the definition clause may apply unless the context otherwise requires, there is no ambiguity here. The legislative intent is not to link the statement issued by the Proper Officer under Sections 73(3) and/or 74(3) to a specific 'tax period'. Instead, it refers to any another 'period', including a 'tax period' or unit of assessment that may fall outside the FY to which the original notice under Sections 73(1) or 74 (1) relates.”, it said. 

The bench further clarified that proceedings under Sections 73 and 74 are adjudicatory in nature and distinct from assessment proceedings under Chapter XII of the Act. Therefore, the court said, they cannot be confined to a rigid financial year framework.

Accordingly, the High Court dismissed the challenge to composite show cause notices spanning multiple assessment years.