Kerala High Court Holds Composite GST Show Cause Notices for Multiple Assessment Years Are Legally Unsustainable

Background: The petitioner, an association of 36 self-financing pharmacy colleges in Kerala, challenged a show cause notice (Ext.P1) issued under Section 63 of the CGST/KGST Act. The notice proposed to assess the petitioner for tax and impose penalties, covering multiple assessment years. The petitioner argued that the notice was invalid on two grounds: (1) it was a composite notice for several assessment years, and (2) it pre-judged the issue of whether the petitioner was liable to register under the Act, despite the petitioner’s claim of exemption under Notification No. 12/2017, entry 66(b)(iv), relating to services for admission or conduct of examinations.

Court’s Analysis: Justice Ziyad Rahman A.A. considered the submissions from both sides. The petitioner contended that the show cause notice was issued with a pre-conceived notion regarding the requirement of registration, contrary to the exemption claimed. The respondent argued that the issue of registration would be decided after examining the documents and the nature of services rendered.

The Court noted that the composite nature of the show cause notice, covering multiple assessment years, was not legally sustainable. This view was supported by previous Division Bench decisions of the Kerala High Court, including Joint Commissioner (Intelligence & Enforcement) v. M/s. Lakshmi Mobiles Accessories and Tharayil Medicals v. Deputy Commissioner, Audit Division – IV. The Court held that such composite notices are impermissible and require interference.

Principle of Fair Procedure: The Court further observed that the language of Ext.P1 suggested a pre-judged conclusion regarding the petitioner’s liability for registration and tax, which is not permissible in a show cause notice. Citing the Supreme Court’s decision in Oryx Fisheries Private Limited v. Union of India, the Court emphasized that a show cause notice must provide the recipient with a genuine opportunity to rebut the allegations and should not reflect a closed mind or pre-determined outcome.

Decision and Directions: The High Court set aside Ext.P1 on the ground that it was a composite notice for multiple assessment years. The Court granted liberty to the authorities to issue fresh, separate show cause notices for each relevant assessment year, ensuring compliance with the principles laid down by the Supreme Court and the High Court. The Court also directed that the proceedings must be finalized by the competent officer in accordance with the relevant circular (Ext.P2), after proper scrutiny of documents and consideration of the petitioner’s contentions.

Conclusion: The Kerala High Court reaffirmed that composite show cause notices under the GST regime for multiple assessment years are not legally sustainable. The Court underscored the necessity for authorities to avoid pre-judging issues in show cause notices and to provide a fair and reasonable opportunity for the assessee to present their case before any adverse conclusion is reached.