The Goods and Services Tax (GST) Department often issues a single Show Cause Notice (SCN) to cover multiple assessment years. While convenient for the authorities, this practice has sparked significant legal debates due to its potential conflicts with GST law and the challenges it imposes on taxpayers.
In certain cases, audits spanning several years result in a consolidated SCN, combining multiple tax periods—even including expired deadlines with still-valid periods. The GST Department claims that issuing one SCN for multiple years is permissible since the GST Act, specifically Section 73, does not explicitly prohibit it. However, taxpayers argue that this practice creates severe compliance challenges, as each financial year involves unique timelines, exemptions, and statutory requirements. A consolidated SCN burdens taxpayers with increased legal expenses and makes it harder to prepare a proper response, leading to delayed resolutions.
Legal Framework for Issuing Show Cause Notices Under GST
Show Cause Notices serve as a legal document from the tax authorities, allowing individuals or businesses to explain why specific actions shouldn’t be taken against them. The issuance of SCNs under the GST framework is governed primarily by Sections 73 and 74 of the GST Act (with Section 74A replacing them for FY 2024-25 onwards).
- Section 73 (up to FY 2023-24): Applies to non-fraudulent cases where tax hasn’t been paid or was short paid. SCNs must be issued three months before the three-year deadline for the financial year in question.
- Section 74 (up to FY 2023-24): Applies to cases involving fraud or willful misstatement. SCNs must be issued six months before the five-year deadline.
- Section 74A (FY 2024-25 onwards): Merges Sections 73 and 74, setting a unified timeline for issuing SCNs. It allows up to 42 months to issue SCNs for any unpaid tax, but retains stricter penalties for fraud-related cases.
These provisions highlight that each assessment year is treated independently, making it clear that timelines for each year must be separately adhered to.
Judicial Stance: Can a Single SCN Cover Multiple Years?
Recent judicial rulings have consistently emphasized that a single SCN covering multiple assessment years violates the provisions of the GST Act. Below are some landmark cases that support this view:
- Veremax Technologie Services Ltd. vs. Assistant Commissioner, GST Bengaluru [2024-VIL-1028-KAR]The Karnataka High Court quashed a consolidated SCN issued for four years under Section 73. The court ruled that each financial year must be independently assessed, with separate SCNs for each year, as required by law.
- Bangalore Golf Club vs. Assistant Commissioner, GST Bengaluru [2024-VIL-1023-KAR]The High Court emphasized that each action must be executed independently for each financial year to comply with statutory timelines. It ruled that bunching multiple years into a single SCN was impermissible and ordered separate SCNs.
- Titan Company Ltd vs. Joint Commissioner, GST & Central Excise, Salem [2024-VIL-19-MAD]The Madras High Court ruled against the consolidation of SCNs for multiple years, stating that the limitation period must be separately applied to each assessment year. It clarified that issuing a single SCN for multiple years violates the time-bound structure laid out under Section 73.
Practical Challenges for Taxpayers and Adjudicators
Taxpayers face a multitude of issues when dealing with consolidated SCNs. Each assessment year may involve different tax positions, exemptions, and input tax credits, making it difficult to address all these complexities in a single response. Similarly, adjudicating authorities also find it challenging to accurately collect and review the information across several years, potentially affecting the impartiality and accuracy of the outcome.
Key Takeaways
The consensus from both legal provisions and judicial rulings is that issuing a single SCN for multiple GST assessment years is legally flawed. Each financial year must be treated as an independent assessment year, with SCNs and subsequent orders issued within the timelines prescribed by the GST Act.
Taxpayers must be vigilant in understanding their rights under the GST Act and, where necessary, challenge any consolidated SCNs that violate the statutory norms. Recent rulings provide a solid precedent for such challenges, emphasizing the importance of independent assessments to ensure clarity and accountability in the tax compliance process.