2025 (4) TMI 1152 - HC - GST

Jursiction - power of proper officer to issue a composite notice for different assessment years - HELD THAT - A cumulative reading of Section 74 (1) (2) and (10) leaves no room for any doubt that each assessment year can be proceeded separately by the assessing officer or the proper officer as the case may be for the purpose of determining whether there is any willful misstatement or suppression of facts. The time limit prescribed under sub-section (10) of Section 74 of the Act shows that the order under sub-section (9) has to be issued within a period of five years from the due date of furnishing of the annual return for the financial year to which the tax is paid or short paid or input tax credit wrongly availed or utilised. This means that for each assessment year the time limit prescribed for the completion of the proceedings is distinct and different. On reading sub-sections (9) and (10) of Section 74 which specifically refer to financial year to which the tax not paid or short paid or input tax wrongly availed or utilised relates while passing the final order of adjudication it presupposes that independent show cause notice be issued to the assessee for each different years of assessment while proceeding under Section 74. We are constrained to hold so because as we noted earlier the assessee can raise a distinct and independent defence to the show cause notice issued in respect of different assessment years. In other words the entitlement to proceed and assess each year being separate and distinct and further the time limit being prescribed under the Statute for each assessment year being distinct there are no no reason as to why it should not be held that separate show cause notices are required before proceeding to assess the assessee for different years of assessment under Section 74. In the present case since the challenge to the show cause notice goes to the root of the jurisdiction of the proper officer in issuing the same and the writ petition is perfectly maintainable. Conclusion - The learned Single Judge failed to take note of these intricate questions of law involved while interpreting the provisions of Section 73 read with Section 74 of the CGST/SGST Act and thus failed to appreciate the contentions of the appellants in its true perspective and therefore erred egregiously in dismissing the writ petition relegating the petitioner to prefer reply to the notice before the adjudicating authority - the appellant has made out a case for interference and hence entitled to succeed. Ext.P1 show cause notice to the extent it relates to the assessment years 2018-2019 2019-2020 2020-2021 2021-2022 stand set aside and Ext.P1 show cause notice to the extent it relates to 2017-2018 is sustained - appeal allowed.

Summary

The core legal question considered in this judgment is whether the scheme of the CGST/SGST Act empowers the proper officer to issue a composite show cause notice encompassing multiple assessment years for initiating proceedings under Section 74 of the Act. This central issue gives rise to subsidiary questions regarding the interpretation of limitation periods, procedural fairness, and the jurisdictional competence of the proper officer to consolidate notices across different financial years.

In addressing the principal issue, the Court examined the relevant statutory provisions, particularly Section 74 of the CGST/SGST Act, which deals with determination of tax not paid or short paid by reason of fraud, willful misstatement, or suppression of facts. Sub-sections (1), (2), and (10) were pivotal in the analysis. Section 74(1) mandates that the proper officer must serve a notice requiring the person chargeable with tax to show cause why the specified amount should not be paid along with interest and penalty. Section 74(2) requires that such notice be issued at least six months prior to the time limit prescribed under Section 74(10), which sets a five-year limitation period for issuance of orders from the due date of furnishing the annual return for the relevant financial year.

The Court reasoned that these provisions inherently contemplate separate proceedings for each assessment year. The limitation period under Section 74(10) is distinct and runs independently for each financial year, thereby implying that the proper officer's jurisdiction and procedural steps must be exercised distinctly for each year. This interpretation aligns with the principle that the assessee is entitled to raise separate and independent defenses for each assessment year, given the subjective satisfaction required under Section 74(1) concerning fraud or willful misstatement.

Supporting this view, the Court relied on precedents including a Division Bench decision of the same High Court in Joint Commissioner (Intelligence & Enforcement) v. Lakshmi Mobile Accessories, where it was held that consolidated orders clubbing different assessment years are impermissible under Section 74. The Court also noted consistent judicial opinions from the Karnataka High Court and the Madras High Court, which have disallowed composite show cause notices covering multiple assessment years under similar statutory schemes.

In contrast, the respondents relied on a Division Bench decision of the Bombay High Court which took a permissive view regarding composite notices. However, the Court found this view unpersuasive in light of the statutory scheme and the need to safeguard the assessee's right to fair adjudication within prescribed limitation periods.

Another significant aspect of the Court's analysis was the interplay between Sections 73 and 74 of the CGST/SGST Act. Section 73 deals with cases of tax not paid or short paid due to reasons other than fraud or willful misstatement, with a limitation period of three years, whereas Section 74 applies to cases involving fraud or suppression with a five-year limitation. The Court emphasized that issuance of a composite notice spanning different years and potentially mixing cases under Sections 73 and 74 would amount to a colourable exercise of power, circumventing the statutory limitation periods and prejudicing the assessee.

Furthermore, the Court highlighted the procedural prejudice caused by composite notices. Since Section 74(2) requires the notice to be issued six months prior to the limitation period expiry for each year, a composite notice could curtail the assessee's opportunity to submit a meaningful reply, thereby violating principles of natural justice.

The Court also addressed the maintainability of writ petitions challenging show cause notices under Section 74. While generally such petitions are not entertained, an exception exists where there is a total lack of jurisdiction or inherent jurisdictional defect. Since the composite notice in this case was held to be beyond the proper officer's jurisdiction, the writ petition was deemed maintainable.

Applying the above legal framework to the facts, the Court found that the composite show cause notice issued to the appellant covering the assessment years 2017-2018 through 2021-2022 was not permissible. The notice was set aside insofar as it related to the years 2018-2019, 2019-2020, 2020-2021, and 2021-2022. The notice relating to 2017-2018 was sustained, subject to the condition that the period spent before the Court would be excluded for limitation computation, and the appellant was granted time to file a reply. The respondents were also permitted to issue separate show cause notices for the other years and proceed in accordance with law.

The Court's conclusions establish several core principles: (1) Separate show cause notices are required for each assessment year under Section 74 of the CGST/SGST Act; (2) Composite notices spanning multiple years violate the statutory scheme and prejudice the assessee's rights; (3) The limitation periods under Sections 73 and 74 must be strictly adhered to, preventing any attempt to bypass shorter limitation periods by clubbing cases; (4) Writ jurisdiction is maintainable where the show cause notice suffers from jurisdictional infirmity; and (5) Procedural fairness demands adequate time for the assessee to respond, which composite notices undermine.

In the Court's words: "A cumulative reading of Section 74 (1), (2) and (10) leaves no room for any doubt that each assessment year can be proceeded separately by the assessing officer or the proper officer as the case may be for the purpose of determining whether there is any willful misstatement or suppression of facts." Further, "the entitlement to proceed and assess each year being separate and distinct, and further the time limit being prescribed under the Statute for each assessment year being distinct, we see no reason as to why we should not hold that separate show cause notices are required before proceeding to assess the assessee for different years of assessment under Section 74."

In conclusion, the Court allowed the intra-court appeal, setting aside the composite show cause notice for multiple years except for the earliest year, and directed the authorities to issue separate notices and complete adjudication within the prescribed time frames, thereby reinforcing the statutory mandate and safeguarding the assessee's procedural rights.