Quashing of Consolidated SCN and Composite Assessment Orders

Quashing of Consolidated SCN and Composite Assessment Orders

1. The Core Dispute: “Bunching” of Multiple Financial Years

The primary legal challenge was the practice of “bunching”—where the tax department issues a single Show Cause Notice (SCN) and a single Assessment Order covering multiple financial years (e.g., FY 2019-20 to 2023-24).

• Petitioner’s Stand: Argued that each financial year is an independent “tax period” with its own distinct limitation period. Clubbing them together violates the statutory scheme and prejudices the taxpayer’s ability to provide a year-wise defense.

• Revenue’s Stand: Initially relied on administrative convenience and the phrase “any period” in Section 73, but eventually accepted the judicial position following the Smt. R. Ashaarajaa ruling.

2. Legal Analysis: Why Consolidated Notices Lack Jurisdiction

The Court followed the settled principle that GST law treats each financial year as a separate unit of assessment.

I. The Limitation Period Argument

Under Section 73(10), an adjudication order must be passed within three years from the due date of the Annual Return for the specific financial year.

• The Problem: Since each year has a different due date, the “limitation clock” starts and ends at different times for each year. A consolidated notice effectively tries to extend the limitation for earlier years by clubbing them with later years, which is a jurisdictional overreach.

II. Definition of “Tax Period”

The Court noted that Section 2(106) defines a “tax period” as the period for which a return is furnished (monthly or annually).

• The Ruling: The term “any period” used in Section 73 cannot be stretched to include multiple financial years. The law requires a specific focus on the returns filed for each distinct year.

3. Final Verdict: Quashed and Remanded

The High Court held that the consolidated SCN and composite order were “impermissible in law.”

• Verdict: The impugned assessment order and all consequential recovery orders were quashed.

• Instruction to Revenue: The SCN was set aside, but the department was granted liberty to initiate separate proceedings by issuing individual show cause notices for each financial year.

Key Takeaways for Taxpayers

• Demand Bifurcation: If you receive an SCN that mixes demands for multiple years into one total sum without clear year-wise bifurcation, it is legally vulnerable.

• Amnesty and Settlement: Consolidated orders make it impossible for taxpayers to settle one year (e.g., via an Amnesty Scheme) while contesting another, as the entire order must usually be challenged or paid as a whole.

• The “Titan” Precedent: This case follows the Titan Company Ltd. (2024) and Veremax (2024) rulings, solidifying the rule that year-wise adjudication is a mandatory procedural safeguard.