Bombay High Court Rules Consolidated Show Cause Notices for Multiple Financial Years Not Permissible Under Section 74 of CGST Act

In a significant ruling, 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, even in cases involving allegations of fraudulent availment of Input Tax Credit (ITC).

The petitioner challenged a show cause notice dated 18 June 2025, issued under Section 74 of the CGST Act, which pertained to the financial years 2018-19 to 2022-23. The notice alleged suppression of taxable value and short payment of tax. The core contention was that clubbing several financial years in a single notice is not permissible under the statutory scheme of the CGST Act.

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 statutory scheme of the CGST Act requires assessment and recovery to be conducted for each financial year separately. The Court in that case emphasized that the Act prescribes a five-year limitation period for each financial year, and the issuance of a single show cause notice for multiple years would aggregate different tax periods with distinct due dates and limitation periods, which the statute does not permit. This view was reiterated in Rite Water Solutions (India) Ltd. v. Joint Commissioner, CGST & Central Excise, Nagpur.

The respondents argued that in cases involving fraudulent availment of ITC, a consolidated notice is justified, relying on the Delhi High Court’s decision in M/s Mathur Polymers v. Union of India, which permitted consolidated notices in such circumstances. The respondents further submitted that the Supreme Court had declined to interfere with the Delhi High Court’s judgment, suggesting that the law laid down therein had attained finality.

The Bombay High Court, however, distinguished the Delhi High Court’s approach, noting that the Supreme Court’s dismissal of the special leave petition was in limine and not on merits, and thus did not result in a merger of judgments. The Court reaffirmed its own precedents, holding that the statutory scheme of the CGST Act is based on annual returns for each financial year, with separate limitation periods and assessment requirements for each year. The Court found no distinction in Section 74 that would permit consolidated notices even in cases of alleged fraud.

The Court summarized the key reasons for its conclusion: the GST scheme is structured around annual returns and year-wise assessment; the statute prescribes separate limitation periods for each year; and consolidation of multiple years in a single notice would undermine the taxpayer’s ability to respond and violate the explicit year-wise structure of the Act. The Court also noted that the authorities within the State of Maharashtra are bound by the law declared by the Bombay High Court, notwithstanding contrary views from other High Courts.

Ultimately, the Court quashed and set aside the impugned consolidated show cause notice, granting liberty to the authorities to re-issue notices strictly in accordance with Section 74 of the CGST Act, treating each financial year as a separate tax period. The petition was disposed of on these terms, with no order as to costs.