GST Show Cause Notices Can Be Issued On Monthly Returns Without Waiting For Annual Return: Madras High Court

The Madras High Court recently ruled that a show cause notice under Section 74A of the GST law can be validly issued for F.Y. 2024-25 on the basis of discrepancies noticed in monthly returns, without awaiting the filing of the annual return.

Section 74A of the GST Act, applicable from FY 2024-25 onwards, governs the determination of tax not paid or short paid or input tax credit wrongly availed or utilised.

Referring to Section 74A(1) to 74A(4) of the GST Act, the bench clarified that "the obligation on the part of the Assessee to pay tax for each and every month would arise based on the monthly returns. If the said tax is not paid or short paid or erroneously refunded, the Officer concerned will not sit and wait till the expiry of due date for filing the annual returns."

The ruling was delivered by Justice Krishnan Ramasamy while dismissing a writ petition filed by Dhanalakshmi Srinivasan Charitable and Educational Trust (petitioner), which had challenged a show cause notice and summary order issued by the State tax authorities for the period from April 2024 to August 2024.

The taxpayer contended that the notice issued on 1st September 2025 was premature, arguing that under Section 74A(2) of the Tamil Nadu GST Act, proceedings could be initiated only after the due date for filing the annual return for the assessment year 2024-25, which was 31st December 2025.

It was submitted that the jurisdiction to issue the notice would arise only from 1st January 2026 onwards.

The department opposed the petition. submitting that the proceedings were initiated based on violations noticed in monthly returns and that the provision relied upon by the petitioner only prescribed the outer limitation period for initiation of proceedings, without restricting the authority from acting earlier when defaults come to light.

The Court held that the term "tax period" under the GST Act refers to the period for which returns are required to be furnished, which includes both monthly and annual returns.

The bench clarified that "The non-compliance of the provisions of GST law would occur either in filing the monthly returns or in filing the annual return. Thus, in the event of non-compliance of provisions of GST Law, the jurisdiction of Authorities, to initiate appropriate proceedings against the Assessee, would arise immediately in terms of Section 74A(1) of the GST Act."

It was observed that taxpayer's liability to pay tax arises month-wise and that any short payment, non-payment, erroneous refund, or wrongful availment of input tax credit immediately empowers the proper officer to initiate proceedings under Section 74A(1).

Clarifying the scope of Section 74A(2), the Court held that the provision merely fixes the maximum time limit for initiating proceedings and does not postpone the commencement of jurisdiction until the annual return is filed. The authorities are therefore not required to wait for the annual return when violations are detected in monthly returns.

"the proceedings, based on monthly return, can be initiated even before the filing the annual return for the relevant assessment year, once the violation of the provisions of GST Law is noticed by the Proper Officer", stated the bench.

Finding no infirmity in the issuance of the show cause notice, the Court dismissed the writ petition.

For Petitioner: Advocates P.M.Kathir

For Respondent: Additional Government Pleader R. Suresh Kumar