The Bombay High Court has delivered a definitive ruling that show cause notices under Section 74 of the CGST Act cannot consolidate multiple financial years, reinforcing the statutory framework’s year-wise structure and protecting taxpayers from procedurally flawed demands.
Background & Facts
The Dispute
The petitioners in Writ Petitions Nos. 6955/2025, 6939/2025 and 6959/2025 challenged show cause notices issued by the Assistant Commissioner of State Tax and other authorities under Section 74 of the Central Goods and Services Tax Act, 2017. These notices alleged suppression of taxable value and short payment of Central GST across multiple financial years - from 2017-18 to 2021-22 - and sought recovery of tax, interest, and penalty. The petitioners contended that such consolidation of disparate tax periods into a single notice violated the statutory scheme of the CGST Act.
Key Facts
- The show cause notice dated 26/7/2024 (issued by Senior Intelligence Officer, DGGI, Nagpur) covered five financial years: 2017-18 to 2021-22.
- Additional notices challenged in the consolidated petitions include:
- Notice dated 1/8/2023
- Notice dated 27/5/2024
- Notice dated 10/6/2024
- All notices were issued under Section 74 of the CGST Act, which pertains to fraud or wilful suppression of taxable value.
- The petitioners argued that each financial year constitutes a distinct tax period under the Act, with separate limitation periods and procedural requirements.
- The notices did not segregate the alleged defaults year-wise, making it impossible for the taxpayer to respond meaningfully to each period’s specific allegations.
Procedural History
- 26/7/2024: Show cause notice issued under Section 74 CGST Act covering 2017-18 to 2021-22.
- Before 13/03/2026: Petitioners filed writ petitions before the Bombay High Court challenging the notices.
- 09/10/2025: Division Bench of Bombay High Court (Goa Bench) in M/s Milroc Good Earth Developers v. Union of India held that consolidation of tax periods under Section 74 is impermissible.
- 28/11/2025: Division Bench of Bombay High Court in Rite Water Solutions (India) Ltd. v. Joint Commissioner, CGST reaffirmed the Milroc ruling.
- 26/08/2025: Delhi High Court in M/s Mathur Polymers v. Union of India held that consolidated notices are permissible in cases of fraudulent ITC availment across years.
- 2025: Special Leave Petition against Mathur Polymers was dismissed by the Supreme Court in limine (Diary No. 50279/2025).
- 13/03/2026: Bombay High Court delivered judgment in the present petitions.
The Parties' Positions
For the Petitioners:
- Relied on Milroc Good Earth Developers and Rite Water Solutions to argue that the CGST Act’s structure mandates year-wise assessment.
- Emphasized that Section 74(10) prescribes a five-year limitation period running separately for each financial year.
- Argued that consolidation violates natural justice by depriving taxpayers of the ability to respond to discrete allegations per year.
- Cited Section 2(106) defining tax period as the period for which return is furnished, and Sections 39, 44, 37, 50 reinforcing annual return-based liability.
For the Respondents:
- Relied on Mathur Polymers to argue that consolidated notices are necessary to trace fraudulent schemes spanning multiple years.
- Contended that the Supreme Court’s dismissal of SLP against Mathur Polymers implied acceptance of its reasoning.
- Suggested that the Bombay High Court’s prior rulings may be challenged before the Supreme Court.
Relief Sought
The petitioners sought:
- Quashing of all show cause notices issued under Section 74 CGST Act covering multiple financial years.
- Declaration that consolidation of tax periods in such notices is illegal.
- Liberty to the authorities to issue fresh notices strictly year-wise, in compliance with statutory timelines.
The Legal Issue
Can a show cause notice under Section 74 of the CGST Act lawfully consolidate multiple financial years into a single notice, or must each tax period be addressed separately in accordance with the statutory scheme?
Arguments Presented
For the Petitioner
The petitioners relied on the binding precedents of the Bombay High Court in Milroc Good Earth Developers and Rite Water Solutions, arguing that the CGST Act’s structure is inherently year-wise. They emphasized that Section 2(106) defines tax period as the period for which a return is required to be furnished, and Section 74(10) imposes a five-year limitation period calculated from the due date of the annual return for each financial year. Consolidation, they argued, merges distinct limitation periods, violates the principle of natural justice by conflating unrelated allegations, and ignores the statutory mandate that tax liability is determined annually. They further cited Sections 39, 44, 37, and 50 to demonstrate that the Act’s entire assessment and recovery mechanism is anchored to financial years.
For the Respondent
The respondents contended that in cases of alleged fraudulent ITC availment, where transactions are interlinked across years, a consolidated notice is necessary to expose the modus operandi. They relied on the Delhi High Court’s judgment in Mathur Polymers, which held that the CGST Act does not prohibit consolidated notices. They argued that the Supreme Court’s dismissal of the SLP against Mathur Polymers rendered its decision final and binding. They further suggested that the Bombay High Court’s prior rulings might be overturned by the Supreme Court, and therefore, the court should await higher authority.
The Court's Analysis
The Division Bench of the Bombay High Court undertook a detailed statutory interpretation of the CGST Act, rejecting the Delhi High Court’s view as inconsistent with the Act’s architecture. The Court held that the statutory scheme of the CGST Act is fundamentally year-specific, with each financial year treated as an independent tax period for assessment, return filing, and recovery.
"The Act of 2017... involve a definite tax period, based on the filing of the Return, which can be either monthly or annual Return and if the assessment is based on annual Return, the tax period shall be the relevant financial year."
The Court emphasized that Section 74(10) prescribes a five-year limitation period running from the due date of the annual return for each financial year. Consolidating multiple years would collapse these distinct limitation periods, creating legal uncertainty and prejudicing the taxpayer’s right to respond to specific allegations per year. The Court noted that the Delhi High Court’s judgment failed to consider the statutory definitions under Section 2(106) and the year-wise operation of Sections 39, 44, and 50.
The Court further clarified that the Supreme Court’s dismissal of the SLP against Mathur Polymers in limine does not constitute a ruling on merit and therefore does not override the Bombay High Court’s binding precedent. Citing Commissioner of Income-tax v. Godavaridevi Saraf, the Court held that until a contrary decision is rendered by a competent High Court, its own precedents prevail within its territorial jurisdiction.
The Court concluded that consolidation undermines the procedural fairness and statutory precision mandated by the CGST Act. The notices, therefore, were legally unsustainable.
The Verdict
The petitioners succeeded. The Bombay High Court quashed and set aside all impugned show cause notices dated 26/7/2024, 1/8/2023, 27/5/2024, and 10/6/2024. The respondents are at liberty to re-issue notices strictly on a financial year-wise basis, in compliance with Section 74 of the CGST Act and Section 6(2)(b) of the CGST Act or Maharashtra GST Act, as applicable. No costs were awarded.
What This Means For Similar Cases
Year-Wise Assessment Is Mandatory
- Practitioners must ensure that all show cause notices under Section 74 CGST Act are issued for a single financial year.
- Notices covering multiple years are void ab initio and subject to immediate quashing.
- Taxpayers may challenge any consolidated notice on grounds of statutory non-compliance, regardless of the nature of alleged fraud.
Limitation Periods Are Year-Specific
- The five-year limitation under Section 74(10) runs independently for each financial year.
- A notice issued in 2024 for 2017-18 must be issued by 30.09.2024 (five years from the due date of the annual return for FY 2017-18).
- Attempting to revive time-barred years through consolidation is impermissible.
Precedent Hierarchy in GST Litigation
- High Courts are bound by their own prior rulings unless overruled by a larger bench or the Supreme Court.
- A dismissal of an SLP in limine does not validate conflicting judgments from other High Courts.
- Practitioners should cite Milroc and Rite Water Solutions as binding authority in all proceedings before authorities within the Bombay jurisdiction.
