‘Bunching’ Impermissible under GST Act: Madras HC Says SCN can be Issued based on Monthly Returns if Annual Filing Pending [Read Order]

“The GST Act permits only for issuance of show cause notice based on the tax period” said the Madras High Court while quashing the Show Cause Notice ( SCNs ) issued to multiple taxpayers which bunched multiple financial years together.

Justice Krishnan Ramasamy observed that “(i) The GST Act permits only for issuance of show cause notice based on the tax period. Therefore, 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 based on the said annual returns.

(ii) If show cause notice is issued before the filing of annual returns, the same can be issued based on the filing of monthly returns;”

Several petitioners, including individual proprietors,had challenged SCNs that grouped tax periods spanning multiple years, contending that the practice is fundamentally unfair and contrary to the statutory mandate.

They submitted that the GST Act treats each financial year as a separate taxable unit with independent limitation periods and assessment obligations.

The petitioners pointed out that clubbing multiple years in a single SCN deprives taxpayers of sufficient time to collect records, prepare replies, or opt for benefits like compounding or amnesty schemes for individual years.

On the other hand, the tax department defended the practice by arguing that the Act does not expressly prohibit clubbing multiple years and that the words ‘any period’ in Sections 73 and 74 permitted block-year proceedings.

They contended that if taxpayers accept clubbing of monthly tax periods within a year, there should be no bar on clubbing financial years together to determine tax liability in one go.

After a detailed hearing, Justice Krishnan Ramasamy rejected this argument, noting that the structure of Sections 73 and 74 makes clear that each financial year must be treated independently, with separate timelines for notices and orders.

The Court stated that the GST Act provides for separate time limits three years under Section 73 and five years under Section 74 from the due date for filing the annual return for each relevant year. By clubbing multiple years in a single notice, tax officers effectively override these separate statutory deadlines and deprive taxpayers of procedural fairness.

The Court also referred to the Supreme Court’s earlier rulings and previous High Court judgments, including Titan Company Ltd. and related cases, reinforcing the principle that assessments must be year-specific.

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The Court found that the department’s argument that ‘any period’ means any block of years was flawed, observing that the law clearly contemplates ‘tax periods’ as discrete units that cannot be merged arbitrarily.

The part of the conclusion given by the high court is as follows: “(iii) If show cause notice is issued after the filing of annual returns or after the commencement of limitation, the said notice shall be issued based on the annual returns with regard to the relevant financial year.

(iv) No show cause notice can be clubbed and issued for more than one financial year since the same is impermissible in law.

(v) In these cases, without any jurisdiction, the impugned show cause notices/orders came to be issued/passed for more than one finanSmt R Ashaarajaa vs The Senior Intelligence Officercial year, which is impermissible in law and hence, the same is liable to be quashed.”

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Therefore, the High Court quashed all the SCNs in the batch cases, declaring that single notices covering multiple financial years are unsustainable in law.