No Bar under GST Act to Issue Common SCN for Different Tax Period: Karnataka HC Upholds Revenue's Power to Issue Consolidated GST SCN [Read Order]

In a significant ruling, a Division Bench of the Karnataka High Court upheld the Revenue Department’s power to issue consolidated show cause notices (SCNs) under Sections 73 and 74 of the CGST Act, 2017, covering multiple financial years. The Court held that there is no statutory bar against issuing a common SCN for different tax periods, ruling that proceedings under these sections are neither strictly financial year-specific nor confined to a single tax period.

The Court was adjudicating intra-Court appeals filed by the Revenue against Single Judge orders that had quashed consolidated SCNs. The Single Judge had relied on judgments from the Madras and Kerala High Courts, which held that GST proceedings are financial year-specific.

The appellants argued that Sections 73 and 74 use the expression "any period," thereby permitting the consolidation of periods. Conversely, the respondents contended that the GST scheme, including returns, reconciliation, and limitation, is structured annually, and consolidating notices distorts pecuniary jurisdiction and limitation periods between fraud (Section 74) and non-fraud (Section 73) cases.

Rejecting the contentions of the assessees, the High Court analysed the statutory scheme. It observed that the legislature consciously employed the term "any period" in Sections 73 and 74. The Court reasoned that sub-sections (3) and (4) of these sections explicitly allow officers to include periods beyond the initial notice, which would become redundant if notices were strictly confined to one financial year.

Addressing concerns regarding limitation, the Court comprising Justice S.G. Pandit and Justice K.V. Aravind clarified that the issuance of a consolidated SCN does not dilute the protection under sub-section (10). Each period covered in the notice must independently satisfy the limitation test; if any part is time-barred, it will be excluded, but the entire notice will not be invalidated. The Court also dismissed fears regarding pecuniary jurisdiction, noting that an assessee has no right to choose the adjudicating authority based on the demand quantum.

Significantly, the Karnataka High Court concurred with the views of the Delhi, Allahabad, and Jammu & Kashmir High Courts, which have upheld the validity of consolidated notices. It expressly declined to follow the conflicting judgments of the Bombay, Kerala, Madras, Andhra Pradesh, and Himachal Pradesh High Courts, stating that interpreting the provision restrictively would amount to "rewriting the legislation."

Accordingly, the Court allowed the writ appeals, set aside the Single Judge's orders, and restored the consolidated show cause notices. The Court granted the assessees four weeks to file their replies, clarifying that all contentions on merits remain open.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates