‘Bunching’ of Show Cause Notices for Multiple Financial Years Impermissible Under GST Act: Madras High Court - 2025-07-23

Madras High Court Rules ‘Bunching’ of GST Notices for Multiple Years is Illegal

CHENNAI: In a significant ruling with wide-ranging implications for GST assessments, the Madras High Court has held that issuing a single “bunched” or “clubbed” show cause notice (SCN) covering more than one financial year is impermissible under the Goods and Services Tax Act, 2017.

Justice Krishnan Ramasamy, in a common order disposing of a batch of writ petitions, quashed the impugned notices and orders, stating that the GST Act mandates separate assessments for each financial year.

Case Background

A group of petitioners, including M/s JRD Realtorss, challenged the practice by tax authorities of issuing a single SCN that encompassed several financial years (e.g., 2017-18 to 2022-23). The core legal question before the court was whether the GST Act permits such a consolidation of assessment periods into one notice.

Petitioners' Arguments: A Plea Against Prejudice

The petitioners, represented by a team of Senior Counsel, argued that this practice was not only against the spirit of the law but also caused significant prejudice to the assessee. Their key contentions were:

Violation of Natural Justice: By issuing a notice at the tail-end of the limitation period for the earliest financial year, the assessee is rushed and unable to gather evidence for all the years in question.

Statutory Hurdles: A single assessment order for multiple years creates practical difficulties, such as preventing an assessee from compounding offences for a specific year, availing amnesty schemes applicable to certain years, or contesting the demand for one year while settling others.

Legal Interpretation: They contended that Sections 73 and 74 of the GST Act, which govern the determination of tax, treat each financial year as a separate unit with its own distinct limitation period. They pointed to the provisions for issuing a "statement" for subsequent periods, which they argued implies separate treatment for each tax period.

Respondents' Defence: No Explicit Bar

The Additional Solicitor General, Mr. AR.L.Sundaresan, representing the tax authorities, countered that there is no explicit prohibition in the GST Act against issuing a single SCN for multiple years. He argued that the term "any period" used in the statute should be interpreted to mean a block of years. He posited that if clubbing twelve months into a single annual notice is acceptable, then clubbing multiple years should also be permissible.

Court's Analysis: Each Financial Year is a Separate Unit

Justice Krishnan Ramasamy sided firmly with the petitioners, undertaking a detailed analysis of the statutory framework. The court held that the legislative intent is to treat each financial year independently.

The judgment emphasized a conjoint reading of several provisions: * "Tax Period"

Defined: The court noted that Section 2(106) of the GST Act defines "tax period" as the period for which a return is required to be furnished. Under GST, returns are filed monthly and annually.

* Limitation is Year-Specific: Sections 73(10) and 74(10) prescribe limitation periods of three and five years, respectively, "from the due date for furnishing of annual return for the financial year." This, the court found, clearly establishes the financial year as the assessment unit.

* Procedural Mandate: The court interpreted Section 73(3) and 74(3) to mean that an initial notice must be issued for one tax period (monthly or annual), and for subsequent periods, a "statement" can be served. This structure reinforces the idea of separate, sequential actions rather than a single consolidated one.

In a pivotal observation, the court stated:

"The GST Act considered each and every financial year as separate unit, due to which, the limitation has been fixed for each and every financial year separately. When such being the case, clubbing more than one financial year, for the purpose of issuance of show cause notice, would not be considered as in accordance with the provisions of Section 73/74 of the GST Act."

The court also cited precedents, including its own decision in Titan Company Ltd. and a Kerala High Court judgment in M/s. Tharayil Medicals , which reached similar conclusions.

The Final Verdict

The High Court allowed the writ petitions, quashing the consolidated show cause notices and orders. It laid down the following principles:

1. A show cause notice under the GST Act must be based on a "tax period," which can be a month (if based on monthly returns) or a financial year (if based on an annual return).
2. No single show cause notice can be issued for a period spanning more than one financial year.
3. The impugned notices were issued without jurisdiction and are therefore liable to be quashed.

This judgment provides crucial clarity on GST assessment procedures, reinforcing the principle of year-wise assessment and protecting assessees from the prejudicial effects of clubbed notices.