Madras High Court Ruling on Improper “Bunching” of Show Cause Notices under GST
Judge: Hon’ble Justice Krishnan Ramasamy
Overview
The Madras High Court has delivered a landmark judgment in the case of Ms. R A and Co vs. The Additional Commissioner of Central Taxes, quashing a consolidated Show Cause Notice (SCN) and assessment order issued for six financial years under GST. The Court ruled that “bunching” of multiple financial years into a single SCN and assessment order is impermissible under GST law, as it violates statutory provisions and prejudices taxpayer rights.
Key Legal Issues Addressed
1. Whether a single SCN can validly cover multiple financial years under Sections 73 and 74 of the CGST/TN SGST Acts.
2. Whether combining tax demands across several years into one adjudication order breaches limitation rules and procedural safeguards.
Court’s Findings and Legal Reasoning
1. Illegal “Bunching” of SCNs
– The Court held that a single SCN covering multiple financial years is impermissible under Section 73 and 74 of the GST Act.
The proper procedure is to issue:
– A separate notice under Section 73(1)/74(1) for the first financial year, and thereafter
separate “statements” under Section 73(3)/74(3) for each subsequent financial year.
“When the Act mandates for issuance of notice in a particular manner, the notice has to be issued accordingly.”
2. Independent Limitation Periods
– Limitation for adjudication under GST is year-specific:
– 3 years under Section 73(10)
– 5 years under Section 74(10)
– Clubbing the years circumvents this structure, leading to jurisdictional overreach and time-barred demands being revived improperly.
3. Tax Period Defined
– As per Section 2(106) of the CGST Act, “tax period” means the period for which a return is required to be filed (monthly or annually).
– Hence, notices under Sections 73 or 74 must be tailored to individual monthly or annual tax periods.
4. Hardships Caused by Composite Notices
The Court underlined several practical issues faced by assessees when SCNs are “bunched”:
– Inability to file applications for compounding under Section 138 for specific years.
– Difficulties in availing amnesty schemes that relate to particular assessment years.
– Restrictions on settling or contesting issues year-wise.
– Violation of the right to appeal effectively, since a single order affects multiple years and issues.
5. Precedents Relied Upon
– Titan Company Ltd. v. Joint Commissioner of GST & Central Excise, (2024) 15 Centax 118 (Mad) – Composite SCNs are invalid.
– W.A. Nos. 2389 & 1397 of 2024, confirming Titan decision, directed minimum 4-week gap between issuance of SCNs for different years.
– Tharayil Medicals (Kerala High Court, 2025) – Independent SCNs are mandatory for each year due to year-wise limitation and factual differences.
– State of J&K v. Caltex (AIR 1966 SC 1350) – Tax periods must be independently assessed.
Court’s Directions
1. SCN must be limited to one financial year & based on returns (monthly/annual) for that specific year.
2. Subsequent years require separate statements, if same issue is involved.
3. No clubbing of SCNs across financial years.
4. The impugned order (covering FYs 2017–18 to 2022–23) is quashed as without jurisdiction.