Bombay High Court Holds Consolidated Show Cause Notices for Multiple Financial Years Impermissible Under Section 74 of CGST Act

In a significant judgment, the Bombay High Court has clarified the legal position regarding the issuance of show cause notices under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act). The Court held that authorities cannot issue a consolidated show cause notice covering multiple financial years or tax periods, as such consolidation is not permitted by the statutory scheme of the CGST Act.

The petitioner challenged a show cause notice dated 26 June 2025 and a consequential order dated 26 December 2025, both of which pertained to alleged suppression of taxable value and short payment of CGST for the financial years 2018-19 to 2021-22. The primary contention was that clubbing several years into a single notice under Section 74 was impermissible.

The petitioner relied on the Division Bench judgment of the Bombay High Court at Goa in M/s. Milroc Good Earth Developers v. Union of India, which held that the CGST Act requires assessment and recovery to be conducted for each financial year separately. The Court in that case emphasized that the statutory scheme prescribes a five-year limitation period for each financial year, and that the issuance of a single show cause notice for multiple years would aggregate different tax periods with distinct due dates and limitation periods, contrary to the Act.

The Bombay High Court also referred to its subsequent decision in Rite Water Solutions (India) Ltd. v. Joint Commissioner, CGST & Central Excise, Nagpur, which reiterated the principle that consolidation of various financial years or tax periods in a single show cause notice under Section 74 is not permissible.

In response, the respondents cited the Delhi High Court’s decision in M/s Mathur Polymers v. Union of India, which permitted consolidated notices in cases involving fraudulent availment of input tax credit across several years. The respondents argued that the Supreme Court’s refusal to interfere with the Delhi High Court’s judgment meant that the law laid down therein had attained finality.

However, the Bombay High Court distinguished the Delhi High Court’s judgment, noting that the Supreme Court’s dismissal of the special leave petition was in limine and not on merits, and therefore did not result in a merger of judgments. The Court further held that, within its jurisdiction, the law declared by the Bombay High Court would prevail unless overruled or stayed by the Supreme Court.

The Court summarized the key reasons for its view: the GST scheme is based on annual returns for each financial year; the statute fixes a separate limitation period for each year; and consolidation of tax periods would undermine the taxpayer’s ability to respond and violate the explicit year-wise structure of the Act. The Court also noted that these statutory nuances were not considered by the Delhi High Court.

Ultimately, the Bombay High Court quashed and set aside the impugned show cause notice and order, granting liberty to the respondents to re-issue notices strictly in accordance with Section 74 of the CGST Act, provided there is no other legal impediment. The petition was disposed of on these terms, with no order as to costs.

This decision reinforces the principle that, under the CGST Act, each financial year constitutes a separate tax period for the purposes of assessment and recovery, and authorities must issue show cause notices accordingly, without consolidation across multiple years.