Tharayil Medicals Vs Deputy Commissioner

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

Does the scheme of CGST/SGST Act empowers the proper officer to issue a composite notice for different assessment years is the question raised before us in this intra court appeal.

2. The brief facts necessary for the disposal of the writ appeal are as follows:

The appellant/writ petitioner was served with a show cause notice under Section 74 of the CGST/SGST Act dated 5.8.2024 proposing to initiate proceedings under Section 74(10) of the CGST/SGST Act for the assessment years 2017-2018, 2018-2019, 2019-2020, 2020-2021 and 2021-2022. In the aforesaid notice, the proper officer concluded that, for different assessment years, the appellant/writ petitioner had applied incorrect HSNs, and therefore, the rate of tax applied is incorrect and thus proposed a reassessment finding that there is a wrong application of tax rate at Rs.21,13,080/- (CGST – Rs.10,56,540/ – SGST-Rs.10,56,540/-). The appellant immediately approached this Court by the writ petition questioning Ext.P1 show cause notice on the ground that, going by the decision of the Karnataka High Court in Writ Petition No.16500 of 2024 (M/s Bangalore Golf Club V. Assistant Commissioner of Commercial Taxes), a composite show cause notice is not permissible under law. The learned Single Judge disposed of the writ petition, relegating the petitioner to file a suitable reply to the show cause notice by taking up any issue specific to any year and also directed the authority to independently consider the said issue while passing the final order of adjudication. Aggrieved by the said judgment, the present intra-court appeal is preferred by the appellant/writ petitioner.

3. Heard Smt. Krishna K., the learned counsel appearing for the appellant and Sri. V.K. Shamsudheen, the learned Senior Government Pleader appearing on behalf of the respondents.

4. Smt. Krishna K., the learned counsel appearing for the appellant, primarily contended that the composite show cause notice issued by the proper officer will certainly act in detriment to the interest of the assessee, especially since, the proper officer will proceed to assess the petitioner in accordance with the proposal contained in the show cause notice for different assessment years, for which, the time prescribed for the completion of the proceedings under Section 74 of the Act is yet to expire. In support of her contentions, the learned counsel relied on the decision of this Court in Joint Commissioner (Intelligence & Enforcement) v. Lakshmi Mobile Accessories [(2025) 171 taxmann.com 214 (Kerala)], wherein it was held by the Division Bench, wherein one of us was a party [DR. A.K.Jayasankaran Nambiar (J)] that the proper officer cannot issue consolidated orders by clubbing into different assessment years for the purpose of determining the liability under Section 74 of the Act. It is further pointed out that the High Court of Karnataka in M/s Bangalore Golf Club (Supra) had taken a view that a composite show cause notice by clubbing different assessment notices cannot be issued. It is further pointed out that the Madras High Court in M/s Titan Company Limited v. Joint Commissioner of GST [W.P. No.33164 of 2023] also has taken a similar view.

5. On the other hand, Sri. V.K. Shamsudheen, the learned Senior Government Pleader appearing on behalf of the respondents relied on the decision of the Division Bench of the Bombay High Court in Riocare India Private Limited v. Assistant Commissioner CGST [(2025) 26 Centax 339 (Bom.)] to contend to the proposition that there is nothing in the CGST/SGST Act, 2017 prohibiting the proper officer from issuing the show cause notice by clubbing different assessment years.

6. We have considered the rival submissions raised across the Bar.

7. Section 74(1) and (2) of the CSGT Act reads as follows:

Section 74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful- misstatement or suppression of facts.-

(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.

(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.

8. Sub-section (2) of Section 74 mandates that the notice under sub-section (1) of Section 74 be issued at least six months prior to the time limit prescribed under sub-section (10) for issuance of the order. Turning to sub-section (10) of Section 74, the proper officer is required to issue notice under sub-section (9) within a period of five years from the due date of furnishing the annual return.

9. A cumulative reading of Section 74(1), (2) and (10) leaves no room for any doubt that each assessment year can be proceeded separately by the assessing officer or the proper officer as the case may be for the purpose of determining whether there is any willful misstatement or suppression of facts. The time limit prescribed under sub-section (10) of Section 74 of the Act shows that the order under sub­section (9) has to be issued within a period of five years from the due date of furnishing of the annual return for the financial year to which the tax is paid or short paid or input tax credit wrongly availed or utilised. This means that for each assessment year, the time limit prescribed for the completion of the proceedings is distinct and different. It is in this context that we have to consider the argument of Smt. Krishna, the learned counsel appearing for the appellant that a separate show cause notice is required for the purpose of each assessment year.

10. When we consider the aforesaid arguments in the light of the principles laid down by us in Lakshmi Mobile Accessories (supra), we find that subsection (1) of Section 74 requires the proper officer to arrive at a subjective satisfaction regarding any specified factors which lead to evasion of tax. Thus the assessee will be entitled to raise separate defence for each assessment year. We have already deprecated the practice of the assessing officer from proceeding to complete the assessment under Section 74 by issuing composite orders. Having held so, the pertinent question before us would be, can the proper officer issue a composite show cause notice and then proceed to pass separate orders for each assessment year. We find that while deciding the case Lakshmi Mobiles Accessories (supra) this issue did not fall for our consideration.

11. When we read sub-sections (9) and (10) of Section 74, which specifically refer to “ financial year to which the tax not paid or short paid or input tax wrongly availed or utilised relates” while passing the final order of adjudication, it presupposes that independent show cause notice be issued to the assessee for each different years of assessment while proceeding under Section 74. We are constrained to hold so because, as we noted earlier, the assessee can raise a distinct and independent defence to the show cause notice issued in respect of different assessment years. In other words, the entitlement to proceed and assess each year being separate and distinct, and further the time limit being prescribed under the Statute for each assessment year being distinct, we see no reason as to why we should not hold that separate show cause notices are required before proceeding to assess the assessee for different years of assessment under Section 74.

12. There is yet another reason why we should hold that separate show-cause notices are issued for different assessment years. There may be cases where proceedings are initiated in the guise of a show cause notice under Section 74 wherein, on facts, the case of the assessee will fall under Section 73 of the CGST/SGST Act. We find that insofar as the time limit prescribed under Section 73(10) of the CGST/SGST Act is concerned, it is three years instead of five years and further, the aspect of fraud, willful misstatement and suppression do not arise for consideration in proceedings under Section 73. Thus, by issuing a composite notice, the assessing authority, cannot bypass the mandatory requirement of Section 73 to complete the assessment by falling back on a larger period of limitation under sub-section (10) of Section 74. If such a recourse is permitted, then certainly the said action would be a colourable exercise of the power conferred by the statute and will offend express provisions of the CGST/SGST Act qua limitation. This reason would also prompt us to hold that in cases where the assessing officer finds that an assessee is liable to be proceeded either under Section 73 or under Section 74 for different assessment years, a separate show cause notice has to be issued. Still further, since proper officer need to issue a show cause notice prior to 6 months to the time limit prescribed under sub-section (10) of Section 74, if a composite notice is issued, the assessee will be prejudiced inasmuch as the availability of a lesser period to submit a proper and meaningful explanation. This also is a strong indicative factor which would prompt us to hold in favour of the assessee.

13. We find normally a writ petition against the show cause notice is not to be entertained by the writ court as held by us in Deputy Commissioner of Intelligence v. Minimol Sabu (W.A. No.238 of 2025), we have carved out the exceptions like in a case where a total lack of inherent jurisdiction being in issuance of show cause notice under Section 74 of the CGST/SGST Act. In such circumstances, the writ petitioner need not be relegated to the alternative remedy by way of appeal.

14. In the present case, we find that since the challenge to the show cause notice goes to the root of the jurisdiction of the proper officer in issuing the same and we hold that the writ petition is perfectly maintainable.

15. Having concluded as above, we find that the learned Single Judge failed to take note of these intricate questions of law involved while interpreting the provisions of Section 73 read with Section 74 of the CGST/SGST Act and thus failed to appreciate the contentions of the appellants in its true perspective and therefore erred egregiously in dismissing the writ petition relegating the petitioner to prefer reply to the notice before the adjudicating authority. Thus, we are of the considered view that the appellant has made out a case for interference and hence entitled to succeed.

16. Accordingly, the appeal is allowed. Ext.P1 show cause notice to the extent it relates to the assessment years 2018-2019, 2019-2020, 2020-2021, 2021-2022 stand set aside and Ext.P1 show cause notice to the extent it relates to 2017-2018 is sustained. We are informed that the period for completion of the assessment for the year 2017-2018 has expired on 7.2.2025 and that no final order has been passed by the assessing authority under the CGST/SGST Act. Since we have condoned the delay in preferring the appeal and that the period of completion of assessment having expired in the meantime and that since we have interfered with the show cause at this stage due to the reasons explained above, we feel it is only just and proper that the entire exercise be re­done by the authorities concerned. Therefore, while sustaining Ext.P1 notice for the period 2017-2018, we make it clear that the period spent before this Court from 8.11.2024 till today shall stand excluded for the purpose of computing the period of limitation under sub-section (10) of Section 74. Thus, we permit the appellant to submit his reply to Ext.P1 notice within a period of three weeks from today and further grant liberty to the respondents to complete the adjudication within a period of one month thereafter. We further make it clear that the respondents would be at liberty to issue separate show-cause notices for the assessment years 2018-2019, 2019-2020, 2020-2021 and 2021-2022 separately and proceed in accordance with law.

The writ appeal ordered accordingly.