Legality of Issuing a Single Show Cause Notice for Covering Multiple GST Assessment Years

The practice of issuing a single Show Cause Notice (SCN) for multiple assessment years under the GST framework has raised concerns. While the GST department finds it convenient, combining multiple years in one SCN can lead to legal and procedural difficulties for both the department and taxpayers.

SCN is a document issued by the tax authorities asking a person to explain why a specific action should not be taken against them. It gives the person an opportunity to defend themselves before any legal action is taken for a violation of the law. The issuance of SCNs under the GST framework is primarily governed by Sections 73 and 74, (with Section 74A replacing them, effective from FY 2024-25) of the GST Act. Each of these sections 73 & 74 addresses different situations where tax assessments and SCNs are issued

Section 73 of CGST Act (up to FY 2023-24): This section deals with cases where determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any willful-misstatement or suppression of facts. Below is an extract of the relevant provisions regarding the timeline for the issuance of SCNs and the passing of orders;

  • “Subsection 2 of Section 73: The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.
  • Subsection 10 of Section 73: The proper officer shall issue the order under sub-section (9) within three 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 or within three years from the date of erroneous refund”

Section 74 of CGST Act [up to FY 2023-24]: This section pertains to determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts. Below is an extract of the relevant provisions regarding the timeline for the issuance of SCNs and the passing of orders;

  • Subsection 2 of Section 74: The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.
  • Subsection 10 of Section 74: The proper officer shall issue the order under sub-section (9) within 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 or within five years from the date of erroneous refund

A new Section 74A [FY 2024-25 onwards] has been introduced to replace Sections 73 and 74, providing for the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason pertaining to Financial Year 2024-25 onward. This section covers both fraudulent and non-fraudulent reasons. It establishes a common time limit for issuing demand notices and orders for tax demands from FY 2024-25 onwards, regardless of whether charges of fraud, willful misstatement, or suppression of facts are involved. However, it retains a higher penalty for cases involving fraud, willful misstatement, or suppression of facts.

Key legal provisions, such as Sections 73 and 74 of the CGST Act, clearly mandate the issuance of SCNs for specific financial years within a given timeline. For instance, Section 73(10) provides that an order must be issued within three years from the due date of furnishing the annual return for the respective financial year, while Section 74 extends this to five years in cases of fraud, misstatement, or suppression of facts. This necessitates separate SCNs for each financial year to comply with these deadlines.

Taxpayers argue that combining multiple years into one SCN complicates tax disputes, as each year has distinct tax liabilities, exemptions, and deadlines. Furthermore, courts have consistently ruled against this practice. For example, the Karnataka High Court in Veremax Technologie Services Limited vs. Assistant Commissioner of Central Tax quashed a consolidated SCN covering multiple years, directing separate SCNs for each year​​.

Thus, the issuance of a single SCN for multiple years seems not permissible under the GST law.