The Gauhati High Court has held that a GST show cause notice issued under Section 73 of the CGST/AGST Acts was not barred by the statutory requirement of issuing the notice at least three months before the deadline for passing the adjudication order.
The Bench of Chief Justice Ashutosh Kumar and Justice Arun Dev Choudhury ruled that the three-month requirement under Section 73(2) has to be understood as ensuring the availability of three full intervening calendar months for completion of the adjudicatory process, rather than by mechanically applying a corresponding-date formula.
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The dispute concerned FY 2020-21. After the company furnished its annual return in Form GSTR-9 and reconciliation statement in Form GSTR-9C on 27 February 2022, the tax authorities scrutinised its returns and other records, including GSTR-1, GSTR-2A, GSTR-3B and e-way bills.
Following the scrutiny, the authorities issued a show cause notice under Section 73(1) of the CGST and AGST Acts. The notice proposed a total liability of approximately ₹33.03 lakh, apart from interest and penalty, on allegations including wrongful or excess availment of ITC from cancelled dealers, return defaulters and non-taxpayers.
The central challenge, however, was not directed at the merits of the proposed tax demand. Instead, the company questioned the competence of the tax authority to issue the notice on 29 November 2024, contending that the notice was issued beyond the statutory time prescribed under Section 73(2).
The appellant relied on Section 73(2), which requires the proper officer to issue the notice under Section 73(1) at least three months prior to the time limit prescribed under Section 73(10) for issuance of the adjudication order.
According to the appellant, 28 February 2022 was the relevant date for determining the limitation period. Consequently, the three-year period under Section 73(10) expired on 28 February 2025.
The appellant argued that counting three months backwards from 28 February 2025 brought the date to 28 November 2024. Since the notice was issued on 29 November 2024, it was contended that the notice was one day beyond the permissible period under Section 73(2).
The Revenue took the opposite position. It argued that the date of issuance of the notice had to be excluded while calculating the statutory period and that, after excluding 29 November 2024, the three calendar months would comprise December 2024, January 2025 and February 2025, ending on 28 February 2025.
The Single Judge had examined the statutory scheme and concluded that the order under Section 73(9) could be issued up to 28 February 2025.
The Single Judge also considered the meaning of the expression “three months” and relied upon Section 3(35) of the General Clauses Act, 1897, under which a month is reckoned according to the British calendar.
The Court further referred to judicial precedents for the proposition that a period expressed in months is to be calculated with reference to calendar months rather than by simply treating a month as 30 days.
Applying the principle that the first day is ordinarily excluded when a statutory period is calculated from a specified date, the Single Judge treated 29 November 2024 as the starting date and excluded it from computation.
Accordingly, December 2024, January 2025 and February 2025 constituted the three calendar months available before the statutory deadline of 28 February 2025. The Single Judge therefore held that the notice dated 29 November 2024 was not beyond the limitation contemplated under Section 73(2).
The Division Bench agreed that 28 February 2022 was the relevant terminal date for determining the requirement under Section 73(2), and that the three-year period under Section 73(10) was relevant for determining the outer limit for issuance of the adjudication order.
The Bench also agreed that “month” means a calendar month and not a period of 30 days and accepted the general principle that, when a statutory period is prescribed from a specified date, the date from which the period commences is ordinarily excluded under Section 9 of the General Clauses Act.
However, the Court held that the difficulty arose when the corresponding-date principle was mechanically applied to Section 73(2).
The Bench examined the statutory scheme governing Sections 73(1), 73(2), 73(9) and 73(10). It noted that Section 73 concerns determination of tax not paid or short-paid, erroneous refunds, or wrongly availed or utilised ITC for reasons other than fraud, wilful misstatement or suppression of facts to evade tax.
A significant observation of the High Court was that issuance of a Section 73(1) notice does not amount to determination of tax liability.
Instead, the notice marks the commencement of the statutory adjudicatory process. The taxable person thereafter gets an opportunity to respond, make representations and participate in the adjudication before the proper officer determines the tax, interest and penalty under Section 73(9).
The Court emphasised that Section 73(2) regulates the commencement of this process, while Section 73(10) fixes the outer limit for its culmination.
According to the Bench, the statutory framework therefore establishes a relationship between the issuance of the notice under Section 73(1) and the final determination under Section 73(9).
The Court also examined Section 75 of the CGST/AGST Acts, which contains general provisions governing determination of tax.
The Bench noted that Section 75(4) provides for an opportunity of hearing in specified circumstances, while Section 75(5) permits adjournment where sufficient cause is shown. Section 75(7) restricts the final demand to the amount and grounds specified in the notice.
Importantly, Section 75(10) provides that adjudication proceedings are deemed to have been concluded if the order is not issued within the period specified under Section 73(10).
The Court therefore held that the notice, opportunity to contest the demand, hearing and final determination form parts of a single adjudicatory process having a legislatively prescribed terminal point.
The statutory deadline under Section 73(10), according to the Bench, is consequently not merely a deadline for performing the final act of issuing an order; it represents the terminal point of the adjudicatory proceedings initiated through the Section 73 notice.
The principal legal question before the Division Bench was whether the expression “at least three months prior to” in Section 73(2) necessarily means that the date exactly three calendar months before the Section 73(10) deadline must be treated as the last permissible date for issuing the notice.
The Court answered the issue by focusing on the purpose of Section 73(2).
According to the Bench, the provision is intended to ensure that the initiation of proceedings does not take place so close to the statutory deadline that the intervening adjudicatory process becomes illusory or unduly curtailed.
The Court therefore examined whether, in the present case, the period between 29 November 2024 and 28 February 2025 constituted three calendar months for the purposes of Section 73(2). It concluded that it did.
The Court observed that once 29 November 2024, the date of issuance of the notice, was excluded from computation, the period available thereafter included the calendar months of December 2024, January 2025 and February 2025.
The Bench particularly noted that the taxable person had the full intervening calendar months of December, January and February available before the expiry of the period prescribed under Section 73(10).
The Court rejected the argument that the notice necessarily became invalid merely because it was issued one day after the corresponding date of 28 November 2024.
It held that such an approach would introduce a degree of rigidity into Section 73(2) that was not expressly contained in the statutory language.
The Bench explained that the corresponding-date principle may be useful in determining periods expressed in months, but it cannot be applied mechanically without considering the statutory context.
Section 73(2), the Court held, does not prescribe an independent limitation period ending on a particular corresponding date. Rather, it prescribes a minimum interval that must remain available between commencement of proceedings and the outer limit for their culmination.
Therefore, the statutory requirement is satisfied when three calendar months remain available after excluding the date on which the notice is issued and before the statutory terminal date.
The Bench further held that the expression “at least” does not alter this interpretation. While the expression ensures that the minimum statutory period cannot be reduced, the manner of computing that period must still follow the established rule of excluding the first date where applicable.
The Court illustrated the consequence of accepting the appellant’s interpretation: a notice issued on 29 November 2024 would be treated as invalid even though the taxable person had the entirety of December, January and February before the expiry of the statutory deadline.
The Bench found that such a consequence did not necessarily follow from the statutory language.
It held that Section 73(2) regulates the interval between initiation of proceedings under Section 73(1) and culmination of the adjudicatory process within the period prescribed under Section 73(10). It does not establish an artificial corresponding-date cut-off for issuance of the notice.
The Division Bench accordingly upheld the Single Judge’s conclusion that the notice dated 29 November 2024 was not beyond the period contemplated under Section 73(2).
The High Court consequently found no reason to interfere with the Single Judge’s order dated 12 February 2026 and dismissed the writ appeal.
However, the Court separately considered the fact that an order under Section 73(9) had already been passed on 28 February 2025, and that ₹10 lakh had been recovered from the appellant after the Single Judge’s judgment.
Taking note of the interim order passed during the pendency of the writ proceedings and the subsequent culmination of the proceedings, the Division Bench considered it appropriate to provide the appellant an opportunity to contest the original show cause notice in accordance with Sections 73 and 75 of the AGST Act.
The Court therefore interfered with the 28 February 2025 Section 73(9) order to enable the appellant to exercise its right to contest the notice dated 29 November 2024.
The appellant has been permitted to file its reply to the notice within four weeks from the date of the judgment. If such reply is filed, the entire proceedings are to be completed within three months thereafter. If no reply is filed within the stipulated four weeks, the order dated 28 February 2025 will revive and the Revenue authorities may proceed in accordance with the AGST/CGST Acts.
The High Court made it clear that its ruling on the limitation issue should not be treated as any comment on the merits of the demand or the appellant’s defence.
Thus, while the Court upheld the validity of the timing of the Section 73 notice, it did not adjudicate whether the alleged ITC availment was actually wrongful or whether the proposed tax, interest or penalty was otherwise sustainable on merits.
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