Kerala High Court: Consolidated GST Show Cause Notices For Multiple Years Prejudicial To Assessee As Limitation Period Would Be Based On The Earliest Year Included In Notice

The Kerala High Court held that issuing a consolidated show cause notice for various financial years would prejudice an assessee’s time for adjudication under the CGST Act, as the limitation period would be based on the earliest year included in the notice.

The Court dismissed the Appeal filed by the Joint Commissioner (Intelligence & Enforcement) and the Joint Commissioner (Taxpayer Services) of the State GST Department (Appellants) challenging the Decision of the Single Bench that had allowed the issuing of separate show cause notice issued to M/s. Lakshmi Mobile Accessories (Respondent) under Section 74 of the Central Goods and Services Tax Act (CGST Act).

A Division Bench of Justice AK Jayasankaran Nambiar and Justice Easwaran S held, “Issuing a consolidated show cause notice covering various financial/assessment years would cause prejudice to an assessee who would not get the full period envisaged for adjudication under the Statute, if that period is circumscribed by the limitation period prescribed in relation to an earlier financial/assessment year.”

Special Government Pleader Muhammed Rafiq represented the Appellant, while Advocate K.S.Hariharan Nair appeared for the Respondent.

Brief Facts

The Appeal was filed by the Joint Commissioner (Intelligence & Enforcement) and the Joint Commissioner (Taxpayer Services) of the State GST Department (Appellants) against the Judgment of the Single Bench. The Respondent, M/s. Lakshmi Mobile Accessories, had challenged a show cause notice that demanded differential tax, interest, and penalty for the financial years 2017-18 to 2023-24 on allegations of suppressed turnover.

The Respondent contended that issuing a single show cause notice for six financial years restricted its ability to respond effectively, as the time limit for adjudication was determined based on the earliest year—2017-18. Additionally, the respondent argued that it was denied the opportunity to cross-examine witnesses whose statements were relied upon in the notice.

Single Bench’s Findings

The Single Bench found force in the contention of the assessee that issuing a composite order covering all the financial years from 2017-18 to 2023- 24 would prejudice the respondent/assessee in relation to its contentions for those assessment yeas where the time limit prescribed under Section 74(10) of the CGST Act would not expire by 07.02.2025, which was the last date for passing orders in respect of assessment year 2017-18. 

The Single Bench, therefore, granted liberty to the Appellants to pass appropriate Orders for 2017-18 pursuant to the show cause notice within the period of limitation prescribed under Section 74(10) of the CGST Act, reserving the right to the authority to pass separate orders of determination for each of the other assessment years mentioned in the show cause notice after granting reasonable opportunity of hearing to the respondent/assessee in accordance with law.

Division Bench’s Reasoning 

The High Court held that “we find ourselves in agreement with the view taken by the learned Single Judge more so in the backdrop of the Scheme that informs proceedings under Section 74 of the CGST Act.”

The Court clarified that consolidated show cause notices covering multiple financial/assessment years can be issued only in circumstances where there is a common period for initiation and completion of the adjudication. 

The Court explained, “In other words, where, in a situation such as the present, the proximate expiry of the limitation period under Section 74(10) is only in relation to one of the six financial/assessment years, the contentions of the assessee and the opportunity available to an assessee for adducing evidence in relation to the other years cannot be rendered illusory by forcing upon the assessee the period of limitation prescribed under Section 74(1) for passing the final order in relation to the earliest financial/assessment year.”

“The scheme of adjudication is different under the CGST Act. Under Section 74 of the CGST Act, the end termini for adjudication varies for each financial/assessment year, since it is not pegged to the date of the show cause notice but to a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to,” it remarked.

Consequently, the Court held “We therefore see no reason to interfere with the impugned judgment of the learned Single Judge, and for the reasons stated therein as supplemented by the reasons in this judgment, we dismiss the Writ Appeal.”

Accordingly, the High Court dismissed the Appeal.

Cause Title: Joint Commissioner (Intelligence & Enforcement) v. M/S. Lakshmi Mobile Accessories (Neutral Citation: 2025-KER-9253)

Appearance:

Appellant: Special Government Pleader Muhammed Rafiq

Respondent: Advocates K.S.Hariharan Nair And Divya Ravindran