Quashing of Consolidated Show Cause Notices and Composite Assessment Orders Covering Multiple Financial Years

Quashing of Consolidated Show Cause Notices and Composite Assessment Orders Covering Multiple Financial Years

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

The tax authorities issued a single consolidated Show Cause Notice (SCN) to the petitioner, covering a span of five financial years (from 2019-20 to 2023-24). Subsequently, a single composite assessment order was passed for the entire period.

• Petitioner’s Stand: Issuing one notice for multiple years is illegal. Each financial year is a separate unit for assessment with its own distinct limitation period. “Bunching” them prevents the taxpayer from raising year-specific defenses and complicates the calculation of interest and penalties.

• Revenue’s Stand: Initially defended the practice but ultimately accepted the legal position that consolidated notices for multiple years lack jurisdiction under the current GST framework.

2. Legal Analysis: Why Each Year Stands Alone

The court relied on the landmark ruling in Smt. R. Ashaarajaa to highlight that the GST law mandates a granular, year-by-year approach to adjudication.

I. Separate Limitation Periods

Under Section 73(10), the limitation for passing an order is 3 years from the due date of the Annual Return for the specific financial year. Since each year has a different due date, they cannot be clubbed into one continuous timeline.

II. Definition of “Tax Period”

The court noted that the term “any period” in Section 73 must be read in conjunction with Section 2(106), which defines “tax period” as the period for which a return is required (monthly or annually). GST law does not recognize a “multi-year” tax period.

III. Procedural Hardship

Consolidated notices create unnecessary hurdles for taxpayers who might want to:

• Contest the demand for one year while settling it for another.

• Avail of year-specific Amnesty Schemes or Compounding of Offences.

• Calculate specific interest liabilities which vary based on the year of default.

3. Final Verdict: Order Quashed with Liberty to Re-initiate

The High Court held that the consolidated SCN and the resulting composite order were without jurisdiction and void ab initio (invalid from the start).

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

• Next Steps for Revenue: The Court set aside the SCN but granted the Revenue the liberty to initiate fresh, separate proceedings for each individual financial year, provided they are within the statutory limitation period.

Key Takeaways for Taxpayers

• Object to “Bunched” Notices: If you receive a single notice for multiple years, raise a preliminary objection citing this Madras High Court precedent. The department must bifurcate the demands.

• Watch the Limitation: For earlier years (like 2017-18 or 2018-19), the department might try to bunch them with later years to “save” a time-barred demand. This is strictly prohibited.

• Year-Wise Reconciliation: Always maintain your reconciliations (GSTR-9/9C) on a financial year basis to ensure you can provide specific rebuttals if the department issues fresh, separate notices.