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 into a single proceeding. This judgment reinforces the statutory architecture of GST as a year-specific tax regime and protects taxpayers from procedurally oppressive assessments that blur statutory timelines and obligations.
Background & Facts
The Dispute
The petitioner, ICAD School of Learning Pvt. Ltd., was issued a show cause notice dated 01/05/2025 by the Joint Director, DGGI, Nagpur, alleging short payment of Central Goods and Services Tax and ineligible input tax credit for the period spanning April 2018 to March 2023. The notice aggregated six distinct financial years into one proceeding, asserting that the petitioner had falsely claimed composite supply of training services along with hostel accommodation. A consequential order dated 30/12/2025 was passed by the Additional Commissioner, CGST, Nagpur, upholding the notice.
Procedural History
- April 2018 - March 2023: Alleged tax irregularities across six financial years
- 01/05/2025: Show cause notice issued under Section 74 of the CGST Act consolidating all six years
- 30/12/2025: Order passed by respondent no. 2 confirming the notice
- 06/02/2026: Writ petition filed before the Bombay High Court challenging the legality of consolidated notice
Relief Sought
The petitioner sought quashing of the show cause notice and consequential order on the ground that Section 74 permits assessment only for individual financial years, and consolidation violates the statutory scheme of the CGST Act.
The Legal Issue
The central question was whether Section 74 of the CGST Act permits the issuance of a single show cause notice aggregating multiple financial years, or whether each tax period must be addressed separately under the statutory framework.
Arguments Presented
For the Petitioner
The petitioner relied on two recent Division Bench judgments of the Bombay High Court: M/s. Milroc Good Earth Developers v. Union of India and Rite Water Solutions (India) Ltd. v. Joint Commissioner, CGST. It argued that the CGST Act is structured around annual returns and year-specific liability, with Section 74(10) prescribing a five-year limitation period that runs independently for each financial year. Consolidation, it contended, collapses distinct statutory timelines, undermines the taxpayer’s right to respond year-by-year, and contravenes Section 2(106) defining tax period as tied to return filing obligations.
For the Respondent
The respondents relied on the Delhi High Court’s judgment in M/s Mathur Polymers v. Union of India, which held that consolidated notices are permissible in cases involving fraudulent ITC claims spanning multiple years. They further argued that the Supreme Court’s dismissal of the SLP against the Delhi judgment conferred finality on its reasoning, and that the Bombay High Court’s prior rulings should yield to this authoritative precedent.
The Court's Analysis
The Court undertook a detailed statutory interpretation of the CGST Act, emphasizing that the legislative design is inherently annual. It noted that Section 39 mandates monthly returns, Section 44 requires annual returns, and Section 2(106) defines tax period as the period for which a return is due - whether monthly or annually. Crucially, Section 74(10) fixes the limitation period for issuing an order as five years from the due date of the annual return for the specific financial year to which the tax default relates.
"The Act of 2017, therefore 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 rejected the Delhi High Court’s view that fraud justifies consolidation, observing that the statutory limitation periods are not suspended or extended for alleged fraud. It held that allowing consolidation would effectively nullify the year-by-year limitation structure, depriving taxpayers of the ability to contest liability on a granular, fact-specific basis. The Court further clarified that the Supreme Court’s dismissal of the SLP against the Delhi judgment was in limine and did not constitute a merits-based affirmation, and therefore could not override binding precedents of the Bombay High Court.
The Verdict
The petitioner succeeded. The Bombay High Court quashed the consolidated show cause notice and consequential order. The Court held that Section 74 of the CGST Act does not permit aggregation of multiple financial years in a single notice, and that each tax period must be addressed separately. The respondents were granted liberty to re-issue notices strictly within the confines of the statutory framework.
What This Means For Similar Cases
Tax Periods Cannot Be Aggregated
- Practitioners must challenge any show cause notice covering more than one financial year under Section 74 as procedurally invalid
- Authorities must issue separate notices for each year, even if the alleged fraud spans multiple periods
- Consolidation cannot be justified on grounds of fraud, efficiency, or administrative convenience
Limitation Periods Are Year-Specific
- The five-year limitation under Section 74(10) begins afresh for each financial year
- A notice issued beyond five years from the due date of a particular year’s annual return is time-barred, regardless of other years’ validity
- Taxpayers may raise limitation as a standalone defense even if the underlying claim appears substantively valid
Precedent Hierarchy in GST Litigation
- Judgments of one High Court are not binding on another unless affirmed by the Supreme Court
- Where two High Courts conflict, the later judgment of a coordinate bench prevails within its territorial jurisdiction
- Practitioners should cite local High Court precedents first, even if other jurisdictions have ruled differently
