Karnataka High Court Quashes Composite GST Notice: Multiple Years Cannot Be Clubbed

Karnataka High Court Quashes Composite GST Notice: Multiple Years Cannot Be Clubbed

1. The Core Dispute: “Bunching” of Multiple Tax Periods

The petitioner challenged a comprehensive legal action by the GST Department, which included a single composite Show Cause Notice (SCN), an addendum, subsequent letters, and a final Order-in-Original.

• The Issue: The Department had clubbed multiple financial years and “block periods” into one solitary notice and adjudication process.

• Petitioner’s Argument: The GST law is structured around the Financial Year as a distinct unit. Each year has its own specific due date for Annual Returns, which in turn dictates independent limitation periods for issuing notices and orders. Consolidation into a single notice is a jurisdictional error.

• Revenue’s Argument: Authorities often argue that the phrase “any period” in Sections 73 and 74 allows for a block of years to be addressed together for administrative efficiency.

2. The Legal Ruling: Jurisdictional Invalidity

The High Court, relying on its landmark ruling in Pramur Homes And Shelters (decided on December 11, 2025), held that the practice of “bunching” or “clubbing” multiple years is illegal and void.

I. Violation of the Statutory Limitation Scheme

The Court observed that Sections 73(10) and 74(10) link the time limit for passing an order to the due date of the Annual Return for the specific financial year.

• The Conflict: If five years are clubbed, the limitation period for the first year might have expired while the last year is still valid. Consolidation allows the Department to indirectly bypass these distinct deadlines.

II. Prejudice to Taxpayer’s Defense

Consolidated notices prevent a “meaningful opportunity of hearing” because:

• Year-Specific Rebuttals: Evidence, reconciliations (like GSTR-2A vs. 3B), and business circumstances vary by year.

• Amnesty Benefits: Taxpayers might be eligible for amnesty schemes (like those under Section 128A) for some years but not others. A composite notice blurs these entitlements.

• Pre-deposit for Appeal: A single massive demand forces a much higher pre-deposit if the taxpayer wants to appeal, causing unnecessary financial hardship.

3. Final Order and Direction

Following the precedent that such a defect goes to the “root of the jurisdiction,” the Court quashed the entire set of proceedings.

• Outcome: The Show Cause Notice, Addendum, Letters, and Order-in-Original were all quashed.

• Liberty to Revenue: The Department was granted the liberty to initiate fresh proceedings, provided they issue separate, year-wise notices and adjudicate each period independently.

• Limitation Shield: The Court typically allows the time spent in this litigation to be excluded when calculating the limitation for the new, separate notices.

Key Takeaways for Taxpayers

1. Identify “Composite” Notices: If you receive a notice covering multiple financial years (e.g., FY 2019-20 to 2023-24), it is legally flawed under the Karnataka High Court’s jurisdiction.

2. Challenge Early: You do not need to wait for a final order; a composite SCN can be challenged via a Writ Petition at the very outset.

3. Check for Section 74 Misuse: Officers often club years to invoke the longer 5-year limit of Section 74 (fraud) for periods that should otherwise be covered by the shorter 3-year limit of Section 73. This ruling prevents such “colourable exercise of power.”