Taxation Law | Issuing Composite Show Cause Notices for Multiple Financial Years is Jurisdictionally Invalid: Madras High Court Quashes GST Demand Order

“Each Financial Year is a Separate Tax Unit; Clubbing Years Violates Statutory Safeguards”— In a landmark judgment Madras High Court set aside a consolidated GST assessment order that combined six financial years into a single proceeding. Justice Krishnan Ramasamy categorically held that such bunching of show cause notices and assessment orders violates the fundamental structure of the Central Goods and Services Tax Act, 2017, and declared the order void ab initio.

The Court emphatically declared: “The GST Act permits issuance of show cause notice based on the tax period… No show cause notice can be clubbed and issued for more than one financial year since the same is impermissible in law.” [Para 28]

High Court Condemns Bunching of Tax Periods as a Clear Violation of Sections 73 and 74 of the CGST Act

This ruling arose from a writ petition filed by Ms. R.A. & Co., represented by its partner Murali Nellaiyah, challenging a consolidated GST demand that spanned from FY 2017-18 to FY 2022-23 under Sections 73 and 74 of the CGST Act, 2017. The petitioner argued that such consolidation fundamentally violates the procedural and substantive safeguards enshrined in the CGST Act, particularly the limitation provisions under Sections 73(10) and 74(10).

Justice Krishnan Ramasamy allowed the writ petition, holding that bunching of financial years results in a jurisdictional defect, depriving assessees of the right to fair adjudication and specific defenses year-wise.

The petitioner, Ms. R.A. & Co., engaged in tax-compliant business activities, was subjected to a consolidated show cause notice by the GST department for six financial years—2017-18 to 2022-23—resulting in a composite assessment order and tax demand.

The petitioner’s primary grievance was that the issuance of a single notice for multiple years prejudiced its legal right to defend each financial year independently. The bunching compressed the timelines for reply, adversely affected the petitioner’s ability to avail benefits under Section 138 (compounding), Section 128 (penalty waiver), and various amnesty schemes which are applicable on a year-specific basis.

Can the GST Department Issue a Single Show Cause Notice and Assessment Order for Multiple Financial Years?

The High Court framed the essential issue thus:

“Whether the respondents can pass a single assessment order for more than one financial year?” [Para 5]

The Court meticulously analysed the provisions of Sections 73 and 74 of the CGST Act, which regulate the determination of tax liability, and concluded that each financial year must be treated as a distinct tax unit.

The Court reaffirmed the binding principle: “Section 73(10)/74(10) of the GST Act specifically provides the time limit… from the due date for furnishing the annual returns for the financial year to which the tax dues relates to. Thus, the GST Act considered each and every financial year as a separate unit…” [Para 10]

Composite Notices Defeat Statutory Limitation and Prejudice Assessee Rights

The Court drew heavily from prior precedents, including the Titan Company Ltd. v. Joint Commissioner of GST & Central Excise [(2024) 15 Centax 118 (Madras)] and Tharayil Medicals v. Assistant Commissioner [(Kerala High Court)], both of which categorically prohibited bunching of multiple financial years in GST proceedings.

The Court observed: “When the Act mandates for issuance of notice in a particular manner, the notice has to be issued accordingly. Therefore, there is a clear bar for bunching of show cause notice…” [Para 9]

It further warned against administrative overreach, stating: “Issuance of composite show cause notice covering multiple financial years… prevents the petitioner from giving year-specific rebuttals, which results in jurisdictional overreach… rendering the order void ab initio.” [Para 27]

Quoting the Supreme Court’s Constitution Bench in State of J&K v. Caltex (AIR 1966 SC 1350), the Court reinforced: “Where an assessment encompasses different assessment years, each assessment year could be easily split up and dissected and the items can be separated and taxed for different periods.” [Para 10]

Composite Order Quashed, Fresh Proceedings Must Follow Year-Wise Segregation

The Court ruled that the consolidated assessment order lacked legal sanctity and quashed it entirely. Clarifying the correct legal approach, the Court held:

“If the annual return is filed, the entire year would be considered as a tax period and accordingly, the show cause notice shall be issued… No show cause notice can be clubbed and issued for more than one financial year…” [Para 28]

The High Court permitted the tax department to initiate fresh proceedings, strictly in accordance with law, ensuring each financial year is assessed through independent notices and orders.

A Strong Judicial Mandate Against Administrative Shortcuts in Taxation

In this pivotal judgment, the Madras High Court underscored the sacrosanct nature of procedural compliance under the GST Act. By reiterating that bunching financial years for tax demands is “impermissible in law,” the Court protected taxpayer rights from administrative convenience masquerading as efficiency.

This decision is poised to have a wide-reaching impact, especially in cases where assessees face consolidated demands infringing their rights to due process, year-wise adjudication, and statutory remedies.

As Justice Krishnan Ramasamy concluded: “The impugned order is passed in contravention of clear statutory safeguards under Section 74(10) and Section 136 of GST Act… and hence, the same is liable to be quashed.” [Para 27-28]

Date of Decision: 21st July 2025