Kerala High Court Reaffirms Year-Wise Adjudication; Quashes Composite SCNs Despite Conflicting Delhi HC Rulings and SC SLP Dismissals

JUDGMENT

[WP(C) Nos.15618/2025, 3332/2025, 4442/2025, 5020/2025, 5103/2025, 5604/2025, 5708/2025, 6270/2025, 6732/2025, 8039/2025, 8283/2025, 8585/2025, 8637/2025, 8880/2025, 8882/2025, 9720/2025, 9965/2025, 10092/2025, 10122/2025, 10131/2025, 10164/2025, 10210/2025, 10682/2025, 10694/2025, 11251/2025, 11335/2025, 11396/2025, 11516/2025, 11676/2025, 12422/2025, 12504/2025, 13067/2025, 13261/2025, 13290/2025, 13773/2025, 13913/2025, 14516/2025, 14625/2025, 14661/2025, 14669/2025, 14757/2025, 14871/2025, 14961/2025, 15178/2025, 15357/2025, 15691/2025, 16352/2025, 17091/2025, 17159/2025, 17167/2025, 17320/2025, 17369/2025, 17374/2025, 17386/2025, 17462/2025, 17810/2025, 18102/2025, 19420/2025, 19684/2025, 19838/2025, 20034/2025, 20140/2025, 20141/2025, 20535/2025, 21599/2025, 23985/2025, 24609/2025, 24873/2025, 24881/2025, 24897/2025, 25000/2025, 25010/2025, 25041/2025, 25731/2025, 25872/2025, 26003/2025, 26016/2025, 26039/2025, 26108/2025, 26162/2025, 26236/2025, 26303/2025, 26649/2025, 26832/2025, 26876/2025, 26886/2025, 26947/2025, 27192/2025, 27303/2025, 27627/2025, 27628/2025, 27670/2025, 27855/2025, 27898/2025, 28368/2025, 29858/2025, 30238/2025, 30250/2025, 30257/2025, 30646/2025, 31252/2025, 31255/2025, 31461/2025, 31820/2025, 32680/2025, 32785/2025, 33408/2025, 33760/2025, 34141/2025, 36084/2025, 36100/2025, 36169/2025, 37031/2025, 39107/2024, 41355/2024, 42558/2024, 44492/2024]

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1. The common issue that arises in all these writ petitions is relating to the sustainability of the notices issued under Sections 73 and 74 of the CGST/SGST Act 2017 in the form of a composite notice for multiple assessment years. The learned counsel appearing for the petitioners contend that the issues raised regarding the composite notice and order is already decided by a Division Bench of this Court in Lakshmi Mobile Accessories v. Joint Commissioner (Intelligence & Enforcement)  (Kerala)/[2025 KHC OnLine 149] and Tharayil Medicals v. Deputy Commissioner, SGST Department, Thrissur (Kerala)/[2025 KHC Online 467]. However, the contention of the learned Government Pleader for the State of Kerala as well as the Senior Panel counsel appearing for the Central Government is that, there is no prohibition in the Act, against the issuance of a composite notice for multiple assessment years and the decisions rendered by the Delhi High Court upholding the validity of such notices were already upheld by the Honourable Supreme Court by dismissing the SLPs filed against the said decisions. Therefore, in the light of the above, no interference is warranted in the impugned notices issued for multiple years.

2. As observed above, the only question that arises for consideration is with regard to the competence of the officers concerned for issuing a composite notice under the provisions of the CGST Act for multiple assessment years. In fact, in Lakshmi Mobile Accessories (supra), this Court elaborately considered the aforesaid question, after referring to the scheme of the CGST Act, by specifically referring to various provisions in the said Act and came to a definite conclusion that such notices are unsustainable in view of the fact that, it causes serious prejudice to the tax payers for various reasons. Paragraph 7 and 8 of the Judgment rendered in Lakshmi Mobile Accessories (supra) are relevant in this regards, which reads as follows:

7. It is clear from the said statutory provisions that the power of the proper officer under Section 74(1) is to determine whether any of the factors leading to tax evasion exist in relation to an assessee during any financial/assessment year and initiate proceedings under the said Section within the time frame contemplated under Section 74(1) of the CGST Act. The said exercise is to be conducted in relation to each of the years in which such pre-conditions exist for the invocation of the power under Section 74(1). While there may be cases where the data available with the proper officer is such that it suggests the existence of pre-conditions for more than one financial/assessment years, the proper officer should ideally issue separate show cause notices to cover the different financial/assessment years since the period available to the Department for adjudication of the show cause notices varies depending upon the due date for furnishing of annual return for that year. In our view, consolidated show cause notices covering multiple financial/assessment years can be issued only in circumstances where the statutory provision provides for a common period for initiation and completion of the adjudication. For instance, under Section 28 of the Customs Act, a show cause notice invoking the extended period of limitation of five years has to cover a prior period of five years ending with the date of issuance of the show cause notice. Similar was the provision under Section 11A of the erstwhile Central Excise Act. Under both of the above provisions, the show cause notices issued, irrespective of whether it covered a single financial/assessment year or multiple years, had to be adjudicated within a fixed period of one year from the date of the show cause notice. The scheme of adjudication is different under the CGST Act. Under Section 74 of the CGST Act, the end termini for adjudication varies for each financial/assessment year, since it is not pegged to the date of the show cause notice but to a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to. Issuing a consolidated show cause notice covering various financial/assessment years would cause prejudice to an assessee who would not get the full period envisaged for adjudication under the Statute, if that period is circumscribed by the limitation period prescribed in relation to an earlier financial/assessment year. In other words, where, in a situation such as the present, the proximate expiry of the limitation period under Section 74(10) is only in relation to one of the six financial/assessment years, the contentions of the assessee and the opportunity available to an assessee for adducing evidence in relation to the other years cannot be rendered illusory by forcing upon the assessee the period of limitation prescribed under Section 74(1) for passing the final order in relation to the earliest financial/assessment year [2017-18]. The statutory period available for an assessee to put forth its contentions against the show cause notice in an effective manner cannot be curtailed by an unnecessary act on the part of the Department in issuing a consolidated show cause notice that includes therein a financial/assessment year in relation to which the period for passing a final order expires earlier.

8. There is yet another aspect of the matter. If a consolidated notice for various financial/assessment years is issued, the total amount of tax, penalty etc. determined as payable by the assessee may increase exponentially depending upon the number of financial/assessment years included in the consolidated notice. The determination of tax, penalty etc. would be in respect of all the financial/assessment years put together. That would go against the provisions of sub sections (9) and (10) of Section 74 which specifically refer to the “financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates” while stipulating the last date for passing the adjudication order. A consolidated notice would also result in a consolidated adjudication order covering several financial/assessment years and in the event of it being adverse to the assessee, the fee/predeposit required to be paid by an assessee for preferring a statutory appeal would also be higher. This could not have been the Scheme of the statutory provisions which are expected to adhere to principles of fairness in taxation. In this context, it is useful to remind ourselves of the following observations of Justice H.R. Khanna in CIT v. Simon Carves Ltd. – [(1976) 4 SCC 435] as regards the nature of the quasijudicial function exercised by assessing officers:

“10. […] The taxing authorities exercise quasijudicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. We are wholly unable to subscribe to the law that unless those authorities exercise the power in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed not to have exercised it in a proper and judicious manner.”

3. In Tharayil Medicals (supra) the view taken in Lakshmi Mobile Accessories (supra) was reiterated and further explained. In Tharayil Medicals, while reiterating the view expressed in Lakashmi Mobile, a reference was also made to the decision rendered by the Division Bench of Bombay High Court in RioCare India (P.) Ltd. v. Asstt. Commissioner CGST and C. Ex. GST 486/95 GSTL 39 (Bombay)/[(2025) 26 Centax 339 (Bom.)], where a contrary view was taken by the said court, on the reason that such composite notice is permissible in view of the fact that the statue does not contain any prohibition in issuing the said notice. Paragraph Nos.3 and 4 of the said decision reads as follows:

“3. At least prima facie we are not impressed with this argument. There is nothing in Section 74 and more particularly 74(1) which would prohibit the Authority from issuing a notice calling upon the assessee to pay tax that has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised, by reason of fraud, or any wilful misstatement or suppression of facts to evade tax. At least prima facie, a notice under Section 74(1) can be issued for any period provided said notice is given at least 6 months prior to the time limit specified in sub-section (10) of Section 74 for issuance of the order.

4. In the present case, admittedly there is no issue of limitation as contemplated under Section 74(10). In these circumstances, at least prima facie we are not satisfied that this Writ Petition ought to be entertained and which is challenging the show cause notice. The Petitioner will have to face the show cause notice and can canvass all arguments before the authority concerned, including the issues raised in the present Writ Petition.”

4. The decision in Tharayil Medicals (supra) was followed by the Madras High court in Oriental Lotus Hotel Supplies (P.) Ltd. v. Joint Commissioner GSTL 25 (Madras)/[2025 (8) TMI 1055] and by the High court of Karnataka in Bangalore Golf Club v. Asstt. CCTes (Enforcement) (Karnataka)/[(2025) 26 Centax 441 (Kar.)].

5. The learned Special Government Pleader [Taxes] and the Learned Senior Panel Counsel seriously opposed the challenge raised against the notices by pointing out that, while rendering the decisions referred to above, certain crucial points were not taken into account. It was also contended by them that, since the contrary view taken by the Delhi High Court is already upheld by the Honourable Supreme Court by rejecting the Special Leave Petition by the Honourable Supreme Court, it is open to this Court to take a contrary view than taken in Lakshmi Mobile Accessories (supra) and Tharayil Medicals (supra).

6. As regards the points which were not considered by this Court in Lakshmi Mobile Accessories (supra) and Tharayil Medicals (supra), it is submitted by the leanred Special Government Pleader that the scheme of proceedings to be initiated under Sections 73 and 74 of the CGST Act are completely different from the assessment/reassessment proceedings contemplated under the earlier corresponding enactments such as Kerala Value Added Tax Act and the Kerala General Sales Tax Act etc. It was contended that, the purpose of Sections 73 and 74 is to find out the actual evasion of tax, in relation to the specific instance of such evasion, and the order assessing the tax and making a demand, would be only in respect of such instance where the evasion, short payment, short levy, the availing of input tax credit wrongfully etc. was detected. To explain this, the learned Special Government Pleader brought to the attention of this Court, the various provisions of the CGST Act.

7. It is pointed out that, the term “valid return” is defined under Section 3(117) as a return furnished under Section 39 on which self assessed tax has been paid in full. Section 39 deals only with monthly returns and the purpose of annual return contemplated under Section 44 of the CGST Act is as a self certified statement, reconciling the values of supplies declared in the return furnished for the financial year. Thus, the contention of the learned Special Government Pleader is that, going by the scheme of the CGST Act, the financial year is not of much relevance, for the purpose of proceeding under Sections 73 and 74, as what is to be addressed through the said proceedings is to ensure the collection of tax which was sought to be evaded or short levied or input tax credit wrongfully availed, in respect of particular instances alone. In other words, while initiating proceedings under Sections 73 and 74 of the CGST Act, the attempt of the officers concerned, is to recover the tax, which is short levied or short collected or input tax credit wrongfully availed and it is not intended to reopen the assessment for the whole year as such. It was also pointed out that, in an inspection or search conducted by the competent officers, if instances as referred to above are revealed relating to multiple assessment years, it may be necessary for the officer to conduct a common enquiry to determine the tax liability, which is not prohibited under the Act specifically or with necessary impications. Thus, according to the learned Special Government Pleader these aspects are not taken into account in the decision rendered in Lakshmi Mobile Accessories (supra) and Tharayil Medical (supra).

8. However, even while accepting the contention of the leaned Special Government Pleader regarding the scheme of the Act as referred to above, it is to be noted that, that by itself would not enable the officers concerned to invoke the powers under Sections 73 and 74 of the Act by issuing composite notice for multiple years. In Lakshmi Mobile Accessories (supra) and Tharayil Medicals (supra), the prejudices that are caused to the tax payers in various ways due to issuance of the composite notices have been dealt with in detail and also taking note of the fact that, there is no provision in the CGST Act that enables the officers concerned to issue a composite notice, findings were entered into by this Court, interfering with such notices and order, holding that such notices/orders are beyond the powers of the officers concerned. After carefully going through the observations and the reasons mentioned in those judgments, I do not find any scope for a different view. More over, the said decision is also binding upon this Court.

9. When it comes to the question of the decisions rendered by the High Court of Delhi, which is Vallabh Textiles v. Additional/Joint Commissioner, CGST Delhi East Commissionerate [W. P. (C) No.13855 of 2024, dated 3-10-2024] which was followed again by the Delhi High Court in Ambika Traders v. Additional Commissioner GSTL 64/[2025 (8) TMI 315 -Delhi High Court] and the orders passed in SLP upholding the said decisions, it is to be noted that the orders passed in the said SLPs were not speaking orders, so as to treat those as precedents. In State of Orissa v. Dhirendra Sundar Das (2019) 6 SCC 270, it was held by the Honourable Supreme Court that an order dismissing the SLP in limine simply implies that the case was not worthy of examination by the Supreme Court for a reason other than merits of the case. It was further held that such in limine dismissal at threshold without indicating any reasons does not constitute any declaration of law or binding precedent under Article 141. This is the reiteration of the legal proposition declared by the Honourable Supreme Court in Khoday Distilleries Ltd. v. Mahadeshwara Sahakara Sakkare Karkhane Ltd. (SC)/[2019 KHC 6265], Kunhayammed v. State of Kerala (SC)/[AIR 2000 SC 2587], and Indian Oil Corporation Ltd. v. State of Bihar (1986) 4 SCC 146.

10. On going through the orders passed in the SLP, it can be seen that no detailed discussion with regard to the merits of the findings or the questions of law are made by the Honourable Supreme Court and hence, I am of the view that the fact that the view taken by the Delhi High Court was not interfered with by the Honourable Supreme Court by dismissing the SLP, by itself cannot be a ground to take a different view in this case, than the one taken by the Division Bench of this Court in Lakshmi Mobile Accessories (supra) and Tharayil Medicals (supra).

11. Of course, it is true that the learned Special Government Pleader pointed out that the decision in Lakshmi Mobile Accessories (supra) is already under Challenge before the Honourable Supreme Court and notice is issued in the SLP filed by the State against the said decision. However, in Abdu Rahiman v. District Collector, Malappuram 2009 (4) KHC 283, it was held by a Division Bench of this Court that, merely because of the reason that the judgment rendered by the Division Bench is stayed by the Honourable Supreme Court, it does not lose its binding precedent and the single Judge is bound to follow the judgment of the Division Bench which is under stay. In this case, evidently, no stay is also obtained against the judgment in Lakshmi Mobile Accessories (supra) or Tharayil Medicals (supra). Therefore, I am bound to follow the observations and principles laid down by the Division Bench of this Court in the aforesaid decisions.

In the light of the discussions made above, I am of the view that the impugned notices in these cases are to be interfered with. Accordingly, these writ petitions are disposed of quashing the impugned notices issued and impugned orders passed for multiple years under the provisions of the CGST /SGST Act, granting liberty to the assessing officers to issue fresh notices separately for the relevant assessment years and to complete the proceedings in accordance with law. It is further clarified that the period during which the respective writ petitions were pending consideration before this Court, i.e from the date of filing till the date of the judgment can be excluded, while computing the period of limitation for issuing notices and completing the proceedings. All other contentions of all the parties are left open.