GST Show Cause Notices Can Cover Multiple Financial Years — No Statutory Bar Under Sections 73/ 74 of the GST Act: Karnataka HC

The Hon’ble Karnataka High Court (Division Bench) in The Commissioner of Central Tax v. Chimney Hills Education Society [Writ Appeal No. 1751 of 2024 (T-RES) and connected matters dated April 23, 2026] allowed the intra-court appeals filed by the Revenue, setting aside the orders of the learned Single Judge which had quashed common/consolidated show cause notices (SCNs) issued under Sections 73 and 74 of the Central Goods and Services Tax Act, 2017 (‘the CGST Act’) covering multiple financial years. The Court held that show cause notices issued under Sections 73/74 of the CGST Act are neither tax period-specific nor financial year-specific, and that there is no statutory bar to the issuance of a common SCN covering multiple tax periods or financial years.

Facts:

The appellants/Revenue issued a show cause notice under Section 74 of the CGST Act for the period from July 2017 to March 2023, alleging defaults on account of fraud, wilful misstatement, or suppression of facts. The material forming the foundational basis for issuance of the SCN was enclosed along with the notice.

Aggrieved by the consolidated SCN, the respondents-assessees filed writ petitions before the learned Single Judge under Article 226 of the Constitution of India, contending that Sections 73 and 74 of the CGST Act are financial year-specific and that an SCN relating to a period beyond a financial year or for multiple financial years is legally impermissible.

The learned Single Judge upheld this contention and quashed the SCNs, placing reliance on M/s. Bangalore Golf Club v. Assistant Commissioner of Commercial Taxes [W.P. No. 16500/2024 dated August 7, 2024] and the Madras High Court decision in M/s. Titan Company Limited v. Joint Commissioner of GST [W.P. No. 33164/2023]. The Revenue filed intra-court appeals before the Division Bench, which are the subject of the present judgment.

Contentions:

Revenue contended that:

• Sections 73 and 74 use the expression “any period” — which cannot be read restrictively as confined to a single financial year.
• The procedure for regular assessment (Chapters IX, XII) and proceedings under Chapter XV relating to demands and recovery is also not restricted to a single financial year.
• Sub-section (10) of Sections 73 and 74 prescribes limitation with reference to a financial year only for the purpose of computing time limits for passing orders and does not confine the scope of the SCN.
• Consolidated SCNs for multiple financial years have been upheld by the Delhi High Court in Mathur Polymers, Ambika Traders; Allahabad HC in SA Aromatics; and Jammu & Kashmir HC in New Gee Enn & Sons.

Assessees contended that:

• Under the scheme of the CGST Act, every action — registration, filing of returns, reconciliation, and assessment — is structured independently for each financial year.
• Form GST DRC-01 (prescribed format for SCN) refers to “tax period” and “financial year,” indicating that SCNs must be confined to a single financial year.
• A composite SCN covering multiple years blurs the statutory distinction between Sections 73 and 74 (different limitation periods of 3 and 5 years respectively), potentially prejudicing the assessee.
• Issuance of consolidated SCNs may result in adjudication by an officer lacking pecuniary jurisdiction, as the aggregated demand may exceed the jurisdictional limit of the issuing officer.
• Bombay HC in Milroc Good Earth Developers and Paras Stone Industries; Kerala HC in Tharayil Medicals; Madras HC in Titan Company; and Andhra Pradesh HC in J. Constructions have held that consolidated SCNs for multiple financial years are impermissible.

Issue:

• Whether it is permissible to issue a consolidated/common show cause notice under Sections 73 and 74 of the CGST Act, 2017 covering multiple financial years or multiple tax periods, or whether such notices must be confined to a single financial year in view of the statutory scheme and the limitation provisions under sub-section (10) of the said sections?

Held:

The Hon’ble Karnataka High Court in Writ Appeal No. 1751 of 2024 (T-RES) and connected matters held as under:

Observed that,

• Sections 73 and 74 of the CGST Act fall under Chapter XV dealing with demands and recovery. Significantly, these provisions consciously employ the expression “any period” while providing for issuance of a notice. The expression “any period” is not defined under the CGST Act and cannot be equated with “tax period.” A “tax period” denotes the period for which a return is required to be furnished and is relevant in the context of provisions dealing with returns, and cannot be imported into the interpretation of Sections 73 and 74.
• A conjoint reading of Sections 59, 60, 61, 62, 63, 64, 65, 66, and 67 of the CGST Act indicates that whenever the legislature intended proceedings to be confined to a specific tax period or financial year, it has expressly provided so. Conversely, whenever such confinement was not intended, the statute employs the expression “such period” or does not refer to any period at all.
• Sub-section (3) of Sections 73/74 enables the proper officer to issue a statement for “such periods” other than those covered under sub-section (1). If proceedings were confined to a financial year, sub-section (3) would be rendered unworkable and otiose — an anomalous result impermissible in statutory interpretation.

Noted that,

• The reference to “financial year” in sub-section (10) of Sections 73/74 operates within a limited sphere — it merely provides a reference point for computing the limitation period for passing orders — and does not control or restrict the scope of issuance of notice. Mere reference to “financial year” in sub-section (10) cannot render the entire provision financial year-specific.
• The Form GST DRC-01 argument is untenable because Note 2 to the form expressly clarifies that the column relating to tax period is not mandatory. Reference to “financial year” in the form format can at best be relevant for computing limitation under sub-section (10) and does not restrict the exercise of power under Sections 73/74.
• The pecuniary jurisdiction argument is also unfounded as Circular No. 254/11/2025-GST dated October 27, 2025 provides a mechanism to transfer proceedings to the appropriate proper officer in the event the total demand in a consolidated SCN crosses the jurisdictional threshold of the issuing officer. An assessee has no right to choose the adjudicating authority.
• The concern about the Section 74 (five-year limitation) displacing Section 73 (three-year limitation) in a composite SCN is addressed by sub-section (4) of Section 74 itself, which enables a notice under sub-section (3) to be treated as a notice under Section 73(1) where the element of fraud, wilful misstatement, or suppression is not established. The extended period under Section 74(10) is not automatic and is attracted only upon a determination under sub-section (9) that fraud, wilful misstatement, or suppression is made out.
• Section 74A (applicable from FY 2024–25 onwards) does not alter the scope of “any period” for SCN issuance under Sections 73 and 74; it only introduces certain modifications prospectively.

Held that,

• Show cause notices issued under Sections 73/74 of the CGST Act do not prohibit coverage of multiple financial years. Such notices are neither tax period-specific nor financial year-specific. There is no statutory bar to the issuance of a common show cause notice covering multiple tax periods or financial years. Any interpretation to the contrary would amount to rewriting the language of Sections 73/74, which is impermissible.
• Each period forming part of a consolidated SCN must independently satisfy the test of limitation under sub-section (10). If any portion of the period covered by the notice is demonstrated to be beyond the prescribed limitation, the same shall be liable to be excluded — but the issuance of a consolidated SCN does not dilute the protection of limitation available to the assessee.
• The view taken by the High Courts of Bombay, Kerala, Madras, Andhra Pradesh, and Himachal Pradesh — holding consolidated SCNs to be impermissible — was respectfully declined. The Court concurred with the views of the High Courts of Delhi (Mathur Polymers, Ambika Traders), Allahabad (SA Aromatics), and Jammu & Kashmir (New Gee Enn & Sons).
• The impugned orders of the learned Single Judge were set aside. The show cause notices issued under Sections 73/74 were restored. The respondents-assessees were granted four weeks’ time to reply to the show cause notices. In the cases where Order-in-Originals had also been set aside, the respondents were given six weeks to file statutory appeals and directed that limitation shall not be raised by the appellate authority if appeals are filed within the time granted.

Our Comments:

Relevant Statutory Provisions:

Section 73 of the CGST Act, 2017 deals with determination of tax not paid or short paid or erroneously refunded, or input tax credit (ITC) wrongly availed or utilised, for reasons other than fraud or wilful misstatement or suppression of facts. The proper officer is empowered to issue a show cause notice and pass an order within three years from the due date for furnishing the annual return for the relevant financial year [Section 73(10)].

Section 74 of the CGST Act, 2017 applies where tax has not been paid or short paid or ITC wrongly availed/utilised by reason of fraud, wilful misstatement, or suppression of facts. The limitation for passing an order is five years from the due date for furnishing the annual return for the relevant financial year [Section 74(10)].

Crucially, sub-sections (3) and (4) of both Sections 73 and 74 permit issuances of a statement for “any period” and “such periods” beyond those initially covered in the notice under sub-section (1). The Court rightly held that these expressions are broader than “tax period” or “financial year” and cannot be limited to a single financial year without doing violence to the plain language of the statute.

Judicial Position — Conflicting Views Across High Courts:

Permitting Consolidated SCNs (aligned with the present judgment):

• Delhi HC — Mathur Polymers v. Union of India [(2026) 154 GSTR 443]; Ambika Traders v. Commissioner [(2025) 33 Centax 189 (Del.)]
• Allahabad HC — SA Aromatics Pvt. Ltd. v. Union of India [2026 SCC OnLine All 191]
• Jammu & Kashmir HC — New Gee Enn & Sons v. Union of India [2025 SCC OnLine J&K 1180]
• Karnataka HC (present judgment) — The Commissioner of Central Tax v. Chimney Hills Education Society [April 23, 2026]

Holding Consolidated SCNs Impermissible (not followed in the present judgment):

• Bombay HC — Milroc Good Earth Developers v. Union of India [(2025) 179 taxmann.com 465 (Bom.)]; Paras Stone Industries v. Union of India [(2026) 182 taxmann.com 643 (Bom.)]
• Note: Recently, the Hon’ble Bombay High Court (Division Bench) in Rollmet LLP v. Union of India [WP No. 16848 of 2025 & connected matters dated April 17, 2026] has expressed serious doubt over the correctness of the earlier Bombay High Court (Goa Bench) ruling in Milroc Good Earth Developers, which had held that consolidated show cause notices under Sections 73/74 of the CGST Act covering multiple financial years are impermissible. Considering the conflicting judicial views across various High Courts, the Division Bench observed that Sections 73(1)/74(1) and particularly sub-sections (3) thereof use the expressions “any period” and “such periods”, which prima facie indicate that the statute does not expressly restrict issuance of a single SCN to one financial year alone. The Court further noted that the limitation prescribed under Sections 73(10)/74(10) governs only the time limit for passing adjudication orders and not the issuance of show cause notices. The Bench also took note of the Delhi High Court decisions in Mathur Polymers and Ambika Traders, wherein consolidated SCNs were upheld, and particularly emphasized that the Supreme Court’s speaking order dismissing the SLP against Mathur Polymers may have binding implications under Article 141 of the Constitution. In view of the substantial divergence of opinion between different High Courts on the issue, the Bombay High Court referred the matter to a Larger Bench to authoritatively decide whether consolidated SCNs for multiple financial years are legally sustainable under the CGST Act, while directing that interim protections granted in pending matters shall continue until final adjudication.

Practical Implications and Key Takeaways:

• The Karnataka HC judgment is a significant ruling. It joins the Delhi, Allahabad, and J&K High Courts in permitting consolidated SCNs covering multiple financial years, thereby reducing administrative burden and avoiding multiplicity of proceedings in cases involving continuing defaults or fraud across years.
• However, given that the Bombay HC (a larger bench), and the High Courts of Kerala, Madras, Andhra Pradesh, and Himachal Pradesh have taken a contrary view, the issue remains in flux and is ripe for resolution by the Supreme Court of India. Taxpayers in jurisdictions covered by these contrary judgments may still challenge consolidated SCNs.
• Importantly, the judgment clarifies that a consolidated SCN does not extinguish the protection of limitation available under sub-section (10) of Sections 73/74. Each period covered by the notice must independently satisfy the limitation test — periods found to be time-barred shall be excluded from the notice.
• Taxpayers receiving consolidated SCNs covering multiple financial years should carefully scrutinize each period for potential time-bar defences under Section 73(10) or 74(10), even if the consolidated notice itself is upheld as valid.
• The Government has reportedly initiated the process of amending the law to clarify the position on clubbed SCNs (similar to the jurisdictional officer (JAO vs. FAO) issue in income tax). Taxpayers and practitioners should monitor legislative developments in this regard.

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(Author can be reached at info@a2ztaxcorp.com)

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