Bombay High Court Rules Show Cause Notices Under Section 74 CGST Act Cannot Consolidate Multiple Financial Years

In a significant ruling, the Bombay High Court has clarified that show cause notices issued under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) cannot consolidate multiple financial years or tax periods. The decision came in a writ petition challenging a show cause notice dated 06/08/2025, which sought to club alleged GST liabilities for the financial years 2019-20 to 2022-23 into a single proceeding.

The petitioner argued that such consolidation is not permissible under the CGST Act, relying on previous judgments of the Bombay High Court, particularly the Division Bench decision in M/s. Milroc Good Earth Developers v. Union of India and the subsequent affirmation in Rite Water Solutions (India) Ltd. v. Joint Commissioner, CGST & Central Excise, Nagpur. In these cases, the Court had held that the statutory scheme of the CGST Act requires assessment and recovery to be conducted for each financial year separately, with specific limitation periods running independently for each year.

The respondent authorities, however, contended that clubbing of periods is permissible, citing a contrary view taken by the Delhi High Court in M/s Mathur Polymers v. Union of India, where it was held that consolidated notices may be justified in cases involving fraudulent availment of input tax credit across several years. The respondents further argued 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, after considering the rival submissions, reaffirmed its earlier position. The Court emphasized that the concept of merger does not apply merely because the Supreme Court dismissed the special leave petition against the Delhi High Court’s judgment in limine, without a decision on merits. The Court further reasoned that the GST statutory framework is built around the concept of annual returns and year-wise assessment, with explicit limitation periods for each financial year as provided under Sections 73(10) and 74(10) of the CGST Act. The Court noted that consolidating multiple years into a single show cause notice would undermine the statutory scheme, collapse distinct limitation periods, and prejudice the taxpayer’s ability to respond to year-wise allegations.

The Court also observed that, in the absence of a binding contrary decision from the Supreme Court or another competent High Court, the authorities in Maharashtra are bound by the law declared by the Bombay High Court. Since the Bombay High Court had, subsequent to the Delhi High Court’s decision, taken a different view, the authorities were required to follow the Bombay High Court’s interpretation.

Accordingly, the Court quashed and set aside the impugned show cause notice dated 06/08/2025, granting liberty to the authorities to re-issue notices strictly in accordance with Section 74 of the CGST Act, provided there is no other legal impediment. The Court also granted liberty to the respondents to seek revival of the petition should the relevant judgments of the Bombay High Court be set aside in future proceedings.

The petition was thus partly allowed, with no order as to costs.