The Bombay High Court has quashed a show cause notice issued under Section 73 of the Central Goods and Services Tax Act, 2017, after holding that the GST department cannot consolidate demands relating to different financial years or tax periods in a single notice.
The bench of Justice Anil L. Pansare and Justice Nivedita P. Mehta observed that authorities operating within the territorial jurisdiction of the Bombay High Court are bound by its decisions holding that separate financial years cannot be clubbed together in a show cause notice under Section 73 of the CGST Act.
The disputed notice covered financial years 2021-22, 2022-23 and 2023-24. The Department alleged that the petitioner had suppressed taxable value during the relevant period, resulting in short payment of Central Goods and Services Tax.
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Appearing for the petitioner, advocate Ram Heda argued that clubbing several financial years in a single notice under Section 73 was legally impermissible. It was submitted that the controversy stood covered by the Bombay High Court’s decision in M/s Milroc Good Earth Developers v. Union of India & Others.
In that decision, the Goa Bench of the Bombay High Court had examined the assessment, payment and recovery scheme under the CGST Act and concluded that there was no scope for consolidating different financial years or tax periods in one show cause notice.
The High Court noted that tax under the CGST Act is assessed with reference to each tax period and that the statutory time limits for initiating and completing proceedings are connected with the annual return for the relevant financial year. Consequently, demands relating to separate financial years involve different due dates and limitation periods.
The Bench also referred to the subsequent decision in Rite Water Solutions (India) Ltd. v. Joint Commissioner, CGST and Central Excise, Nagpur & Others, in which the Bombay High Court reiterated that various financial years or tax periods could not be consolidated while issuing a notice under Section 73.
The Department opposed the petition and relied upon the Delhi High Court’s ruling in M/s Mathur Polymers v. Union of India & Others. In that case, the Delhi High Court had held that a consolidated notice might be required where allegations of fraudulent availment of input tax credit involved transactions spread across several years.
The Delhi High Court had observed that the language of the legislation did not prohibit the issuance of a consolidated show cause notice or order covering multiple years, particularly where such consolidation was necessary to establish an alleged illegal business methodology.
The Department further pointed out that the Supreme Court had declined to interfere with the Delhi High Court’s decision while dismissing the special leave petition filed against it. It was therefore argued that the legal position stated by the Delhi High Court had attained finality.
The Bombay High Court, however, rejected the argument that the dismissal of the special leave petition resulted in the merger of the Delhi High Court’s decision with the Supreme Court’s order.
The Bench observed that the Supreme Court had dismissed the petition in limine and had not decided the controversy on its merits. Therefore, the doctrine of merger would not apply merely because the special leave petition had been dismissed.
Explaining why its earlier decisions would prevail within Maharashtra, the High Court said that the GST framework is based on returns and tax liabilities attributable to identifiable tax periods and financial years. Even when returns are filed monthly, the liability and statutory proceedings remain tied to the relevant financial year.
The Court noted that the time limits prescribed under Sections 73 and 74 operate separately for each financial year. A single show cause notice covering several financial years would combine tax periods having different due dates and different limitation periods.
The Bench further observed that Section 2(106) of the CGST Act defines “tax period” as the period for which a return is required to be furnished. The statutory scheme, including Sections 37, 39, 44 and 50, treats each financial year as a distinct period for assessment and recovery purposes.
According to the Court, consolidation would collapse the separate year-wise statutory requirements and grounds into one proceeding. It could also prejudice the taxpayer’s ability to furnish an effective and independent response for each financial year.
The Bench remarked that these aspects of the CGST Act’s year-wise assessment and limitation structure had not been considered by the Delhi High Court while taking a contrary view.
The Department also relied upon the Delhi High Court’s later decision in Technosys Integrated Solutions Private Limited v. Union of India & Others. The Bombay High Court held that the decision would not assist the Department because authorities functioning within Maharashtra were bound by the law declared by the jurisdictional High Court.
“We fail to understand as to how this judgment will be of any relevance,” the Bench observed, emphasising that once the Bombay High Court had taken a different view, the authorities working within its territorial jurisdiction were required to follow that view.
The Court also referred to its ruling in M/s Hakikatrai and Sons, Akola v. Union of India & Others, in which the binding nature of the jurisdictional High Court’s decision had been reiterated.
During the hearing, the Department informed the Court that proposals to challenge the Bombay High Court’s decisions in Milroc Good Earth Developers and Rite Water Solutions were under consideration. It was also submitted that the issue concerning the clubbing of multiple financial years had been referred to a Larger Bench in M/s Rollmet LLP v. Union of India & Others.
The Court granted the Department liberty to seek revival of the proceedings if the earlier Bombay High Court decisions are set aside or if the Larger Bench subsequently adopts a different legal position.
The Court, however, clarified that the Department would be free to issue fresh notices strictly in accordance with Section 73 of the CGST Act, provided there was no other legal impediment.
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