The Andhra Pradesh High Court while quashing the composite Show Cause Notice (SCN) issued by the Directorate General of GST Intelxligence (DGGI), Vijayawada has held that separate proceedings are required for each tax period.

The bench of Justice R Raghunandan Rao and Justice T.C.D.Sekhar has set aside the composite show cause notices issued against the petitioners and granted liberty to the GST authorities to initiate fresh proceedings, if considered necessary, in accordance with law.

The bench directed that, for the purpose of limitation, the period between the issuance of the original show cause notices and the date of the High Court’s judgment shall be excluded. Recorded the submission that the petitioners had already deposited substantial tax amounts, clarifying that such payments would remain subject to the outcome of any fresh proceedings initiated by the department. 

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The batch of writ petitions arose from GST proceedings initiated against co-owners of an immovable property situated in Poranki Village, Andhra Pradesh. The property had been leased to an educational institution under a lease deed executed in May 2013.

According to the judgment, the petitioners were initially not registered under the GST law. Although one of the co-owners later obtained GST registration, the authorities alleged that GST had not been paid on the lease rentals received from July 2017 to March 2022. Consequently, the DGGI initiated proceedings under Section 74 of the Central Goods and Services Tax Act, 2017, alleging suppression of taxable turnover and seeking recovery of GST, interest and penalty. 

The impugned show cause notices covered the period from July 2017 to March 2022.

The petitioners contended that the invocation of Section 74 was wholly unjustified because there was neither suppression of facts nor any intention to evade tax.

They further argued that the rental income qualified for exemption under Entry No. 12 of Notification No. 12/2017-Central Tax (Rate), which exempts services by way of renting a residential dwelling for use as a residence. The composite show cause notices covering multiple tax periods were contrary to settled legal principles. Separate assessment proceedings are mandatory for each tax period and clubbing several years into one notice is impermissible. 

The petitioners also relied upon the Andhra Pradesh High Court’s earlier decision in S.J. Constructions v. Assistant Commissioner and referred to the Supreme Court’s decision in State of Karnataka v. Taghar Vasudeva Ambrish in support of their claim regarding exemption. 

The department argued that Section 74 had been rightly invoked because the petitioners deliberately suppressed rental income with an intention to evade GST. The lease deed did not establish that the premises had been rented for residential purposes, thereby disentitling the petitioners from claiming the exemption. Even if the notices covered multiple periods, separate adjudication orders could subsequently be passed for different tax periods, and therefore the notices should not be invalidated merely on that ground. 

The Bench observed that the controversy regarding composite proceedings had already been settled by the Court in S.J. Constructions.

The Court reiterated that assessment proceedings under GST must be initiated and completed separately for every tax period. Clubbing several tax periods into one assessment proceeding is contrary to law. Consequently, even the issuance of composite show cause notices covering multiple tax periods cannot be sustained. 

While the petitioners and Revenue extensively argued on the applicability of the residential dwelling exemption and the legality of invoking Section 74, the High Court deliberately refrained from expressing any opinion on these substantive issues.

The Bench observed that making findings on merits at the writ stage could prejudice future adjudication before the proper GST authority if fresh proceedings are initiated.

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