Composite Show Cause Notice under Section 74 for Multiple Financial Years – Held Prejudicial and Impermissible
Date & Year of Judgment
05 February 2025
This Division Bench judgment of the Kerala High Court strengthens the principle that composite SCNs under Section 74 for multiple financial years are structurally prejudicial under the GST scheme.
Case Reference
Joint Commissioner (Intelligence & Enforcement) & Anr. v. M/s Lakshmi Mobile AccessoriesW.A. No. 258 of 2025Neutral Citation: 2025:KER:9253High Court of Kerala
Other similar cases
Titan Company Ltd., Represented by its Authorized Signatory Mr. P. Manivannan Versus The Joint Commissioner of GST & Central Excise
W. P. No. 33164 of 2023 And W. M. P. No. 32855 of 2023
Date- 18/12/2023
Madras High Court
1. Main Issue Involved
Whether issuance of a single consolidated show cause notice under Section 74 of the CGST Act covering multiple financial years (2017-18 to 2023-24) is legally sustainable under the scheme of Section 74, particularly in view of differing limitation periods under Section 74(10).
The judgment clarifies that limitation under Section 74 is financial-year specific and cannot be artificially compressed through composite notices.
2. Sections and Rules Discussed
Section 74(1) – Initiation of proceedings for fraud/suppression
Section 74(2) – Time limit for issuing SCN
Section 74(9) – Determination order
Section 74(10) – Limitation for passing order (five years from due date of annual return of that financial year)
The Court focused on the internal structure and limitation mechanics of Section 74.
3. Facts of the Case
Department issued a single consolidated SCN under Section 74.
SCN covered six financial years: 2017-18 to 2023-24.
Assessee challenged the composite notice.
Single Judge allowed separate adjudication year-wise.
Department filed writ appeal challenging that direction.
The dispute was not about merits of demand, but about procedural legality of consolidated SCN.
4. Department’s Submissions
No statutory mandate requiring separate notices.
Composite notice permissible.
Assessee attempting to delay proceedings.
Revenue argued absence of express prohibition.
5. Assessee’s Submissions
Composite SCN prejudices right to defend.
Limitation under Section 74(10) varies year-wise.
For earliest year (2017-18), limitation expiring shortly.
Effective opportunity curtailed for later years.
Assessee highlighted practical prejudice arising from composite adjudication.
6. Analysis and Findings of the Court
The Division Bench upheld the Single Judge’s reasoning and elaborated extensively on statutory scheme.
A. No Mandate for Consolidated SCN
The Court held that Section 74 does not mandate consolidated notices.
B. Limitation is Year-Specific
Limitation under Section 74(10) is linked to due date of annual return of each financial year.
C. Prejudice Caused by Composite Notice
Composite notice forces adjudication within limitation period of earliest year, curtailing defence opportunity for later years.
D. Impact on Appeal & Pre-Deposit
Composite adjudication inflates tax demand and consequently increases pre-deposit burden.
E. Fairness in Tax Administration
The Court invoked principles of fairness in quasi-judicial taxation.
Important Observations of the Court
(Para 6)
“there is no mandate under Section 74 for the issuance of a consolidated show cause notice covering various assessment years.”
(Para 7)
“the proper officer should ideally issue separate show cause notices to cover the different financial/assessment years since the period available to the Department for adjudication of the show cause notices varies depending upon the due date for furnishing of annual return for that year.”
(Para 7 – On Prejudice)
“Issuing a consolidated show cause notice covering various financial/assessment years would cause prejudice to an assessee who would not get the full period envisaged for adjudication under the Statute, if that period is circumscribed by the limitation period prescribed in relation to an earlier financial/assessment year.”
(Para 7 – On Curtailment of Statutory Period)
“The statutory period available for an assessee to put forth its contentions against the show cause notice in an effective manner cannot be curtailed by an unnecessary act on the part of the Department in issuing a consolidated show cause notice…”
(Para 8 – On Appeal Consequences)
“A consolidated notice would also result in a consolidated adjudication order covering several financial/assessment years and in the event of it being adverse to the assessee, the fee/pre-deposit required to be paid by an assessee for preferring a statutory appeal would also be higher. The determination of tax, penalty etc. would be in respect of all the financial/assessment years put together. That would go against the provisions of sub sections (9) and (10) of Section 74 which specifically refer to the “financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates” while stipulating the last date for passing the adjudication order. This could not have been the Scheme of the statutory provisions which are expected to adhere to principles of fairness in taxation.”
(Para 8 – On Fairness in Tax Administration)
“The taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner…”
The Court anchored its reasoning not only in limitation mechanics but also in constitutional fairness in taxation.
7. Final Judgment
Writ Appeal dismissed.
Single Judge’s direction for separate adjudication upheld.
Composite SCN effectively disapproved.
The Division Bench has now firmly institutionalized the “separate year-wise adjudication” doctrine under Section 74.
8. Similar / Related Judgments
Kerala HC – Lakshmi Mobile (earlier DB ruling on composite SCN)
Kerala HC – Dhanlaxmi Bank case
Earlier Kerala line holding composite SCNs prejudicial
Other HCs examining limitation compression issue
Kerala High Court has now consistently taken a strict view against composite SCNs under Section 74.
9. CA BTA Insights
This judgment is extremely important in GST litigation.
Strategic Importance:
Composite SCNs can be challenged as prejudicial.
Limitation under Section 74(10) is year-specific.
Defence opportunity cannot be curtailed by administrative convenience.