Bombay High Court: GST Show Cause Notices Cannot Bunch Multiple Financial Years Into One Notice

The Bombay High Court has reinforced an important safeguard for taxpayers by holding that a show cause notice under the Central Goods and Services Tax Act, 2017 cannot bundle several financial years into a single consolidated notice. Where the tax department had raised a demand through one show cause notice spanning multiple financial years, the Court treated the exercise as being without jurisdiction. For businesses navigating GST adjudication, the ruling is a reminder that procedure is as important as the substance of the demand. Our guide on how to respond to a tax notice explains the broader response process.

The Statutory Scheme: Sections 73 and 74

The CGST Act creates two principal routes for recovering tax not paid, short paid, or wrongly refunded, and input tax credit wrongly availed. Section 73 applies where there is no fraud, wilful misstatement or suppression of facts, and carries a shorter limitation period and lower penalties. Section 74 applies where fraud, wilful misstatement or suppression is alleged, and carries an extended limitation period and higher penalties.

Both provisions are structured around a tax period. The limitation periods for issuing a notice and passing an order are calculated with reference to the due date for the annual return of a financial year. This is the heart of the issue: when one notice covers several years, the distinct limitation timelines and the distinct cause of action for each year are blurred together.

Why Bunching Is a Problem

The Court's reasoning, consistent with the view taken by several High Courts, is that each financial year is a distinct taxable unit with its own return, its own limitation period and its own cause of action. Consolidating multiple years into a single notice can deprive the taxpayer of year-specific defences and can extend or compress limitation in a way the statute does not permit. A notice that mixes years therefore goes to jurisdiction, not merely to form.

The practical consequence is significant. If a consolidated notice is found to be without jurisdiction, the demand built on it can be set aside, leaving the department to issue fresh, year-wise notices only if limitation still permits.

There is also a natural-justice dimension. Adjudication under Sections 73 and 74 requires that the taxpayer receive a proper opportunity to respond to the specific allegations for each period. A consolidated notice can blur what exactly is alleged for which year, making a meaningful reply harder to draft. Courts have repeatedly stressed that a show cause notice must be specific enough for the noticee to understand and answer the case against them, and a bunched notice can fall short of that standard.

A Divided Judicial Landscape

It is important to present this area accurately. The High Courts are not unanimous. Several, including the Bombay, Madras and Karnataka High Courts in various decisions, have held that bunching multiple years in one notice is impermissible. A Division Bench of the Karnataka High Court, on the other hand, has taken the view that Sections 73 and 74 are not year-specific and that there is no statutory bar to a consolidated notice. Given this divergence, the question is widely expected to be settled by the Supreme Court.

Taxpayers should therefore track how the law develops. For related procedural developments in GST adjudication, see our note on the GSTAT principal bench hearing appeals against advance ruling orders.

Practically, a taxpayer who succeeds on the bunching objection does not necessarily extinguish the demand forever. The department may still be able to issue separate, year-wise notices for those years where the limitation period has not yet run out. The objection is therefore most valuable for older years where fresh notices would be time-barred. This is why the interaction between the bunching rule and limitation is so important, and why the issue is being watched closely as it moves towards an authoritative resolution.

What Taxpayers Should Do

A business that receives a consolidated show cause notice covering several financial years should not assume the demand is valid simply because it has been raised. The threshold objection, that the notice is without jurisdiction for bunching distinct years, should be examined and, where appropriate, raised at the earliest stage. Maintaining clean records and understanding registration and compliance basics helps; see our guide on how to register for GST online.

Related Reading

If your dispute concerns refunds rather than demands, read how to claim a GST refund under Section 54.

For a major Supreme Court ruling on GST rates, see why the Court upheld 28 percent GST on online gaming.

Key Takeaways

The Bombay High Court has reinforced that GST show cause notices under Sections 73 and 74 should be issued separately for each financial year, and that a consolidated notice covering multiple years can be quashed as without jurisdiction. Because the High Courts differ on this point and the matter may reach the Supreme Court, taxpayers should treat a bunched notice as a serious procedural defect to be examined early, while keeping abreast of how the higher courts ultimately resolve the conflict.