Bombay High Court Reaffirms Year-Wise Assessment In GST, Limits Scope of Section 74 Notices

The Bombay High Court (Nagpur Bench) recently, quashed a show cause notice issued against Rainbow Greeners Nagpur, under Section 74 of the CGST Act on the ground that it unlawfully clubbed five financial years in a single composite proceeding.

A Division Bench of Justice Anil L. Pansare and Justice Nivedita P. Mehta wrote:

“In the light of the statutory scheme, we find that there is no scope for consolidating various financial years/tax period which is attempted by the impugned Show Cause Notices assailed in the Petition.”

The core issue before the Court was whether a show cause notice under Section 74 of the CGST Act can validly consolidate multiple financial years into a single proceeding.

The Court analysed the structure of the Act and reaffirmed its earlier position that GST assessment and recovery operate on a year-wise basis.

The Court observed that the Act prescribes a separate limitation period for each financial year under Sections 73(10) and 74(10). The limitation period runs independently from the due date of filing the annual return for that year. A consolidated notice, the Court observed, merges separate tax periods, distinct limitation tracks, and independent factual foundations an approach not contemplated under the statutory framework.

The Bench further observed that such consolidation prejudices the taxpayer's right to respond year-wise and undermines the carefully structured limitation mechanism under the Act.

Relying on its previous judgments in Milroc Good Earth Developers and Rite Water Solutions, the Bench held that GST liability is tied to returns filed for each distinct tax period.

The Revenue had relied on the Delhi High Court decision in Mathur Polymers v. Union of India, where it was held that in cases involving fraudulent ITC across multiple years, a consolidated notice may be permissible. It argued that since the Supreme Court had dismissed the challenge to that judgment, the view had attained finality.

The Bombay High Court rejected this contention, holding that dismissal of an SLP in limine does not merge the issue when it has not been decided on merits. It further noted that since the Bombay High Court had subsequently taken a contrary view, authorities within the State are bound by its decisions unless set aside by the Supreme Court.

Accordingly, the Court allowed the petition partly and quashed the composite show cause notice. However, it granted liberty to the Department to issue fresh notices strictly in accordance with Section 74 of the CGST Act, subject to there being no other legal impediment.

No order was passed as to costs.

Appearance for the Petitioner: Mr. R. D. Heda
Appearance for the Respondent: Mr. K. R. Lule, A.G.P. for respondent No.1, Mrs. K. Jaltare, Advocate for respondent Nos. 2 to 4.