Composite GST demand notices clubbing multiple financial years are illegal as they violate limitation periods.
Issue
Whether the tax authority can legally issue a composite Show Cause Notice (SCN) and a single Order-in-Original (OIO) by clubbing multiple distinct financial years (2018-19 to 2023-24) under Section 74, or if each financial year must be treated as an independent unit for the purpose of limitation.
Facts
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Parties: The petitioner is a banking company registered under the CGST and West Bengal GST Act.
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Audit and SCN: Prior to the notice, the tax authority requested financial documents, and the petitioner furnished inter-branch invoices up to March 2024. The authority then issued a single, composite SCN clubbing multiple financial years from 2018-19 to 2023-24.
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Petitioner’s Response: The petitioner submitted a detailed reply with worksheets and invoice-wise details, while explicitly objecting to the issuance of a single, clubbed SCN.
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Adjudication: The adjudicating authority rejected the petitioner’s objection, claimed that invoices were absent, and passed an OIO confirming an IGST demand along with interest and an equal penalty.
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Writ Petition: The petitioner moved the High Court via a writ petition, challenging the jurisdiction of the composite notice and the subsequent order.
Decision
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Separate Limitation Units: The High Court held that each financial year serves as a separate and distinct unit under the GST limitation scheme.
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Limitation Cannot Be Enlarged: The five-year limitation period under Section 74 runs strictly from the due date of the annual return for that specific year and cannot be artificially extended or enlarged by clubbing multiple years together.
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Interpretation of “Period”: The court clarified that the statutory expressions “Any Period/Periods” must be interpreted as a specific “Tax Period” tied to a monthly or annual return. An SCN can cover monthly returns or an entire financial year, but not multiple financial years at once.
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Action Declared Illegal: The court concluded that clubbing multiple years was an impermissible attempt to overcome the bar of limitation. Consequently, the composite SCN and the resulting OIO were declared illegal, passed without jurisdiction, and were quashed.
Key Takeaways
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No Multi-Year Clubbing: Tax authorities cannot bundle multiple financial years into a single composite SCN if doing so extends the limitation period for older years.
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Strict Statutory Timelines: The limitation clock under Section 74 is rigid and calculated individually for each financial year based on its respective annual return due date.
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Jurisdictional Defect: An order passed on the basis of a clubbed, multi-year SCN is fundamentally flawed and lacks legal jurisdiction, making it vulnerable to being quashed by the High Court under writ proceedings.