Introduction
The Kerala High Court has ruled that issuing a consolidated GST show cause notice (SCN) for multiple financial years prejudices the assessee by restricting their ability to respond effectively. The limitation period for adjudication gets pegged to the earliest year mentioned in the notice, leading to potential legal disadvantages.
This ruling clarifies the adjudication process under Section 74 of the CGST Act, 2017, emphasizing the importance of allowing businesses sufficient time to present their case.
Background of the Case
The case involves M/s. Lakshmi Mobile Accessories, which challenged a consolidated show cause notice covering six financial years (2017-18 to 2023-24). The notice demanded differential tax, interest, and penalties due to alleged suppressed turnover.
The assessee argued that:
- The limitation period was determined based on the earliest financial year (2017-18), reducing their response window for later years.
- They were denied the right to cross-examine witnesses whose statements were used against them.
In response, the State GST Department’s Joint Commissioner (Intelligence & Enforcement) and Joint Commissioner (Taxpayer Services) filed an appeal challenging the Single Bench’s judgment, which had ruled in favor of issuing separate SCNs for each financial year.
Key Observations of the Kerala High Court
The Division Bench of Justice AK Jayasankaran Nambiar and Justice Easwaran S upheld the Single Bench’s verdict, ruling that:
- A consolidated SCN can only be issued when a common period exists for both initiation and adjudication.
- The end date for adjudication under Section 74(10) of the CGST Act varies for each year, as it is five years from the annual return filing due date for that financial year.
- Using a single SCN across multiple years restricts the time available to the assessee, affecting their ability to submit evidence effectively.
Legal Precedents Considered
The High Court referred to:
- Mardia Chemicals Ltd. v. Union of India (2004) – Affirmed taxpayer rights in adjudication processes.
- Deputy Director v. Axis Bank (2019) – Reinforced procedural fairness in financial matters.
- Relevant CGST Provisions: Section 74(10) – which sets time limits for adjudication based on each financial year.
Final Ruling & Implications
The High Court dismissed the appeal, ruling that the tax authorities must:
- Issue separate SCNs for each financial year, ensuring proper adjudication timelines.
- Provide the assessee reasonable opportunity to present their case without procedural disadvantages.
- Align adjudication deadlines with Section 74(10) to prevent arbitrary limitations.
This judgment serves as an important precedent for businesses facing GST scrutiny, reinforcing the need for procedural fairness in tax adjudication.
Key Takeaways for Businesses & Tax Professionals
- Separate SCNs must be issued for each financial year to ensure a fair response window.
- Businesses should challenge consolidated notices if they limit response time under CGST Act provisions.
- The ruling reaffirms natural justice principles, ensuring fair opportunities for defense in tax disputes.