Consolidated GST Show Cause Notices Across Multiple Years Permissible: Karnataka High Court

The Karnataka High Court has recently ruled that GST authorities can issue a single show cause notice covering multiple financial years, settling a dispute over whether such notices must be confined to one year.

The question before the court was,

“Whether it would be permissible to issue consolidated/common show cause notice under Sections 73 and 74 of the Act covering multiple financial years or multiple tax periods?”

Answering this, a bench of Justice S.G. Pandit and Justice K.V. Aravind held,

“Answer to the above point would be in the affirmative for the reasons stated hereunder.”

"we conclude that show cause notices issued under Sections 73/74 do not prohibit coverage of multiple financial years. Such notices are neither tax period–specific nor financial year–specific. There is no statutory bar to issuance of a common show cause notice covering multiple tax periods or financial years. Any interpretation to the contrary would amount to rewriting the language of Sections 73/74, which is impermissible", it concluded.

The dispute arose from notices issued to several taxpayers, including one covering the period from July 2017 to March 2023 alleging fraud, willful misstatement, and suppression of facts.

These notices were challenged before a single judge, who held that issuing a “common/consolidated show cause notice for multiple financial years is impermissible” and allowed the department to issue fresh notices instead.

The court noted that different High Courts had taken divergent views on the issue, with decisions of the Delhi and Allahabad High Courts permitting such notices, while other High Courts had taken a contrary view.

In appeal, the tax department argued that the law uses the expression “any period," which does not restrict action to a single financial year.

It contended, "It would be impermissible to read it as restrictive one, restricting it to a single financial year.”

Taxpayers argued that the GST system is structured around financial years, with returns, reconciliations and assessments organised year-wise. They also pointed to the prescribed notice format, which refers to “tax period” and “financial year”, and argued that a tax period cannot extend beyond a financial year.

Rejecting this, the Court examined the wording of the law and the overall scheme of the GST framework.

It said, “We have to take note of the expressions used in the Act by the legislature i.e., “tax period”, “financial year”, “such period” or in some provisions, no reference to a period. On a combined reading of the provisions of the Act and particularly Sections 73 and 74 of the Act, the irresistible conclusion would be that the proceedings under Sections 73 and 74 of the Act were never intended to be confined to a financial year"

The court also clarified, “Mere reference to “financial year” in sub-section (10) neither indicates, nor can it be construed to mean, that Sections 73/74 are confined to a financial year. Such an interpretation is not borne out from a plain reading of the provisions. It is a settled principle that, while interpreting a fiscal statute, the provisions must be construed strictly in accordance with their plain language. Nothing can be added, omitted, or implied. Any such exercise would amount to rewriting the legislation, which is impermissible."

The court noted that issues around input tax credit do not always stay within neat yearly boundaries. Transactions often run across several years, and understanding them may require looking at how they connect over time.

On that basis, the bench set aside the earlier orders and dismissed the writ petitions, bringing the show cause notices back into force and allowing the proceedings to move ahead. In cases where final orders had already been passed, it gave parties a six-week window to file statutory appeals without facing objections on delay.