GST Show Cause Notice Cannot Club Multiple Years: A Big Relief from Bombay High Court
Tax litigation often begins with a simple document called a Show Cause Notice (SCN). But sometimes that notice itself becomes the biggest legal controversy. A recent judgment of the Bombay High Court (Nagpur Bench) has delivered an important ruling on this issue under GST law. The Court has held that the GST department cannot issue a single show cause notice covering several financial years together under Section 74 of the CGST Act. Each financial year must be dealt with separately. This decision has significant implications for taxpayers and tax authorities alike.
The case involved a petition filed by M/s Hakikatrai and Sons, Akola, challenging a show cause notice issued by the GST authorities on 26 June 2025. The notice alleged suppression of taxable value and short payment of GST for multiple years ranging from FY 2018-19 to FY 2022-23. In other words, instead of issuing separate notices for each year, the department issued one consolidated notice covering five financial years.
The taxpayer approached the Bombay High Court contending that such clubbing of multiple tax periods in a single notice is contrary to the structure of the GST law. The argument was simple yet powerful: GST is a return-based taxation system where liability is determined for each tax period. Therefore, assessment or recovery proceedings must also be year-specific.
The High Court examined the statutory scheme of the CGST Act and noted that GST liability arises from returns filed for specific tax periods. Although returns may be filed monthly, the law ultimately links the liability to the financial year through the annual return. Hence, every financial year becomes an independent tax period for assessment and recovery purposes.
The Court also analysed Sections 73 and 74 of the CGST Act which deal with recovery of tax not paid or short paid. These provisions prescribe strict limitation periods for issuing orders. For example, in cases involving fraud or suppression (Section 74), the order must be issued within five years from the due date for furnishing the annual return for the relevant financial year. Since the limitation is calculated separately for each financial year, combining multiple years into a single notice would mix different limitation periods and due dates.
The judges therefore held that the structure of GST law clearly contemplates year-wise assessment. If the department issues a single consolidated notice covering several years, it would effectively collapse separate tax periods into one proceeding. This would not only contradict the statutory framework but could also prejudice taxpayers by forcing them to respond to multiple years’ issues in one composite proceeding.
Interestingly, the GST department argued that such consolidation should be allowed in cases involving fraudulent input tax credit (ITC). According to the department, when the alleged modus operandi spreads across multiple years, a consolidated notice may be necessary to establish the pattern of fraud.
However, the Court rejected this argument. It observed that Section 74 does not create any exception allowing consolidation of multiple years even in cases of fraud. The only difference in such cases is the longer limitation period of five years. That extended limitation cannot be used as justification to club several financial years into one notice.
Another interesting aspect of the case was the conflicting judicial views. The department relied on a Delhi High Court decision in Mathur Polymers v. Union of India, where the Court had taken the view that consolidated notices for multiple years could be permissible in cases involving fraudulent ITC claims. The department also pointed out that the Supreme Court had declined to interfere with that judgment when approached through a Special Leave Petition.
Despite this, the Bombay High Court refused to follow the Delhi High Court’s approach. It clarified that dismissal of an SLP by the Supreme Court without detailed examination does not amount to approval of the reasoning of the High Court. Therefore, the principle of merger would not apply in such circumstances.
More importantly, the Bombay High Court noted that its own earlier judgments had already taken a clear view against consolidation of tax periods. In the cases of Milroc Good Earth Developers and Rite Water Solutions (India) Ltd., the Court had held that separate show cause notices must be issued for each financial year under the GST regime. The present bench followed those precedents and reaffirmed the same principle.
The Court also explained the practical reasons behind this rule. GST law operates on a clearly defined concept of “tax period,” which is the period for which a return is required to be filed. Every financial year therefore has its own returns, liability determination, limitation period, and recovery mechanism. Combining multiple years in one notice would disturb this statutory architecture and make compliance and adjudication unnecessarily complicated.
Accordingly, the Bombay High Court quashed the consolidated show cause notice issued to the taxpayer. However, the Court granted liberty to the department to issue fresh notices separately for each financial year in accordance with law, provided such notices are still within the applicable limitation period.
For taxpayers, this ruling provides an important procedural safeguard. GST notices covering five or six years together are often difficult to respond to because each year may involve different transactions, documents, and explanations. The Court’s ruling ensures that proceedings remain structured and manageable by requiring year-wise adjudication.
For the GST department, the judgment serves as a reminder that procedural discipline is as important as substantive enforcement. Even when serious allegations such as suppression or fraudulent ITC are involved, the authorities must still operate within the framework prescribed by the statute.
The decision also highlights an interesting aspect of Indian tax jurisprudence-different High Courts may sometimes interpret the law differently. Until the Supreme Court settles the issue conclusively, such conflicting views may continue. In fact, during the hearing, it was indicated that the earlier Bombay High Court rulings may themselves be challenged before the Supreme Court in the future.
Therefore, the last word on this issue may still be awaited. But as of now, at least within the jurisdiction of the Bombay High Court, the legal position appears clear: under the GST law, show cause notices under Section 74 cannot club multiple financial years into one consolidated proceeding. Each tax period must stand on its own.
For businesses facing GST investigations, this judgment offers a practical takeaway. If a notice combines several years into a single proceeding, it may be worthwhile to examine whether such a notice is legally sustainable. Sometimes, the strongest defence begins not with the merits of the tax demand, but with the legality of the notice itself.
In taxation, as in cricket, procedure matters. A wrong delivery can invalidate the entire wicket-and in this case, the High Court has declared that clubbing several financial years into one GST notice is precisely such a wrong delivery.
The copy of the order is as under:
