CONSOLIDATED SHOW CAUSE NOTICES UNDER GST – PERMISSIBLE – KARNATAKA HIGH COURT

02May 2026 by admin

CONSOLIDATED SHOW CAUSE NOTICES UNDER GST – PERMISSIBLE

Karnataka High Court (Division Bench) – W.A. No. 1751 of 2024 c/w batch

The Commissioner of Central Tax, Bengaluru NW Division v. M/s Chimney Hills Education Society & Ors.

Coram: Hon’ble Mr. Justice S.G. Pandit & Hon’ble Mr. Justice K.V. Aravind

Date of Judgment: 23 April 2026

1.  ISSUE FOR CONSIDERATION

Whether it is permissible to issue a consolidated/common Show Cause Notice under Sections 73 and 74 of the CGST Act, 2017 covering multiple financial years or multiple tax periods?

2.  CONCLUSION OF THE COURT

Answered in the affirmative – in favour of the Revenue. The Division Bench held that proceedings under Sections 73/74 of the CGST Act are default-specific, not tax-period or financial-year specific. There is no statutory bar to issuance of a common Show Cause Notice covering multiple tax periods or multiple financial years.

3.  BACKGROUND

Six writ appeals filed by the Department were heard together. Learned Single Judges, in the impugned orders, had quashed Show Cause Notices/Orders-in-Original on the ground that issuance of a consolidated SCN spanning multiple financial years is impermissible, primarily following the Madras High Court ruling in Titan Company Ltd. and an interpretation of Section 73(10)/74(10) which references the “financial year”. The Department carried the matter in appeal.

4.  RATIO – KEY REASONING

(a)  “Any period” v. “Financial year”: Sub-section (1) of Sections 73 and 74 consciously employs the expression “any period” for issuance of notice. The expression “any period” is not defined and cannot be equated with “tax period” under Section 2(106). Wherever the legislature intended confinement to a tax period or financial year, it has expressly said so; where no such confinement is intended, the statute uses “such period” or no reference to a period at all.

(b)  Sub-sections (3) & (4) of Sections 73/74: These provisions specifically permit the proper officer to serve a statement of demand for “such periods other than those covered” in the original SCN. If the SCN under sub-section (1) were confined to a financial year, sub-section (3) would be rendered unworkable and otiose. The legislature thus contemplated coverage beyond a single financial year.

(c)  Limitation under sub-section (10) is only a reference point: Sub-section (10) prescribes limitation for passing of the order with reference to the due date of annual return for the financial year to which the demand relates. The mere reference to “financial year” in sub-section (10) cannot be read as confining the substantive scope of Sections 73/74. The provisions constitute a complete code in themselves.

(d)  Limitation protection is preserved: Even where a consolidated SCN is issued, each component period must independently satisfy the limitation test under sub-section (10). Any portion of the period falling beyond limitation is liable to be excluded as time-barred. A consolidated notice does not dilute or take away the protection of limitation otherwise available to the assessee.

(e)  Form GST DRC-01: Reliance on the format of DRC-01 was rejected. The note appended to the form expressly clarifies that columns relating to “tax rate, turnover and tax period” are not mandatory. Reference to tax period/financial year in the form is at best relevant for computing limitation, not for restricting the power.

(f)  Section 65/66/67 (Audit, Special Audit, Inspection): Audits and inspections under these provisions are not confined to a tax period or financial year, and proceedings under Sections 73/74 emerging from such audits/inspections necessarily span beyond a single year. This reinforces that Sections 73/74 are not financial-year-specific.

(g)  Section 73 v. Section 74 – differing limitation: The argument that combining FMS (fraud/misstatement/suppression) and non-FMS periods in one notice would extend Section 73 limitation by application of Section 74 was rejected. The extended limitation under Section 74(10) is not automatic – it is attracted only upon a determination under sub-section (9) that fraud/wilful misstatement/suppression is established. Otherwise the limitation under Section 73(10) governs. Reliance was placed on Circular No. 5/2023-GST dated 13.12.2023.

(h)  Pecuniary jurisdiction (Circular No. 254/11/2025-GST dated 27.10.2025): The contention that consolidation defeats pecuniary jurisdiction was rejected. The Circular itself provides for transfer of proceedings to the appropriate proper officer on aggregation. The assessee has no right to choose the adjudicating authority; mere shifting to a higher rank causes no prejudice.

(i)  Section 74A (FY 2024-25 onwards): Although Section 74A is, by its sub-section (12), made applicable to the financial year 2024-25 onwards, it likewise uses the expression “any period” for issuance of notice. The introduction of Section 74A does not lend support to the financial-year-specific interpretation.

5.  JURISPRUDENTIAL ALIGNMENT

Concurred with (in favour of consolidated SCN):

  • Delhi HC – Ambika Traders v. Commissioner (2025) 33 Centax 189 (Del); SLP dismissed.
  • Delhi HC – Mathur Polymers v. Union of India (2026) 154 GSTR 443; SLP dismissed.
  • Allahabad HC – M/s SA Aromatics Pvt. Ltd. v. Union of India (Writ Tax 7515/2025, dated 20.01.2026).
  • J&K and Ladakh HC – New Gee Enn & Sons v. Union of India, 2025 SCC OnLine J&K 1180.

Respectfully declined to follow:

  • Bombay HC – Milroc Good Earth Developers v. Union of India (2025) 179 taxmann.com 465; Paras Stone Industries (2026) 182 taxmann.com 643.
  • Kerala HC – Tharayil Medicals v. Commissioner (2025) 173 taxmann.com 867.
  • Madras HC – Titan Company Ltd. v. Joint Commissioner (2024) 159 taxmann.com 162.
  • Andhra Pradesh HC – S.J. Constructions v. Assistant Commissioner (2025) 178 taxmann.com 570.
  • Himachal Pradesh HC – Ekta Enterprises v. State of HP (2026) 38 Centax 303.

Note: The Bombay HC Division Bench in M/s Rollmet LLP v. Union of India (W.P. No.16848/2025, order dated 17.04.2026) has expressed doubt regarding the view in Milroc Good Earth Developers and referred the matter to a Larger Bench. The position before the Bombay HC is therefore in flux.

6.  OPERATIVE ORDER

  • Writ appeals allowed; impugned orders of the Single Judges set aside; writ petitions dismissed.
  • Show Cause Notices issued under Sections 73/74 of the Act are restored.
  • In W.A.Nos. 1751/2024, 7/2025, 407/2026 and 555/2026, four weeks granted to file replies to the SCNs.
  • In W.A.Nos. 1590/2024 and 495/2026, six weeks granted to prefer statutory appeals against the Orders-in-Original; the appellate authority is directed to consider the appeals on merits without raising the plea of limitation.
  • All observations are confined to the issue of validity of consolidated SCN; merits left open.

7.  PRACTICAL IMPLICATIONS FOR ASSESSEES IN KARNATAKA

(i)  Binding precedent within Karnataka: The Division Bench has now settled the position within the State – a consolidated SCN under Sections 73/74 covering multiple financial years is not liable to be quashed on this ground alone. Earlier reliance on Titan Company Ltd. (Madras HC) is no longer available before the Karnataka HC.

(ii)  Limitation defence preserved: Notwithstanding the consolidation, each financial year/component period must independently satisfy limitation under Section 73(10)/74(10). Where any portion is beyond limitation, that portion is to be excluded. This becomes a year-wise scrutiny exercise even within a consolidated proceeding.

(iii)  Section 73 v. 74 – burden on Revenue: Where consolidated SCN spans periods that ought properly to fall under Section 73, the Department cannot, by clubbing under Section 74, automatically avail the extended five-year limitation. Section 74 invocation requires specific evidence of fraud/wilful misstatement/suppression on record. Absent such finding under sub-section (9), Section 73(10) limitation will govern.

(iv)  Year-wise quantification still essential: Drawing from New Gee Enn & Sons (J&K HC) which the Karnataka HC concurred with, a consolidated SCN must contain (a) clear specification of period covered; (b) year-wise quantification of tax, interest and penalty; (c) cogent grounds and specific allegations; (d) compliance with limitation for each period; and (e) compliance with principles of natural justice. Vague, omnibus or non-speaking SCNs remain liable to challenge.

(v)  Pecuniary jurisdiction: Aggregation may shift jurisdiction to a higher-ranked officer (Asst./Dy. Commissioner up to Rs.1 crore; Addl./Jt. Commissioner above) per Circular 254/11/2025-GST. Mere shifting cannot be challenged as causing prejudice.

(vi)  Section 74A regime (FY 2024-25 onwards): The same principle of “any period” coverage continues. Consolidation will likely remain permissible under the new regime as well.

8.  KEY TAKEAWAYS / ACTION POINTS

  • Stop relying solely on the “consolidated SCN per se invalid” ground in Karnataka; this defence is now closed.
  • Shift focus to: (i) limitation on a year-wise basis; (ii) absence of fraud/wilful misstatement/suppression for Section 74 invocation; (iii) lack of year-wise quantification, vagueness, and natural justice violations; and (iv) merits of each individual demand.
  • In pending writ petitions challenging consolidated SCNs solely on the financial-year ground, evaluate withdrawal/conversion strategy and urgent filing of appeals where Orders-in-Original have already been passed.
  • Watch for (a) the Bombay HC Larger Bench reference in Rollmet LLP; (b) any Special Leave Petition by the affected assessees in this batch; and (c) further pronouncements aligning the divergent position across High Courts.

– Issued for circulation –