Single SCN Can be Issued for Multiple FYs. Having a Common Adjudication Period

Held by Hon’ble High Court of Kerala

In the matter of Joint Commissioner (Intelligence and Enforcement) vs. M/s Lakshmi Mobile Accessories (W.A.NO.258 OF 2025)

The Assessee received consolidated Show Cause Notice under Section 74 of CGST Act for FY 2017-18 to 2023-24. The Assessee challenged such SCN in the writ petitioner wherein it was held that the department is required to issue separate SCN for every assessment year. The Department filed a writ petition against the impugned order before Hon’ble High Court of Kerala. The Department contended that there is no provision envisaged under the CGST Act for issuing separate notices and orders for each financial year.

Hon’ble High Court held that Section 74 empowers the proper officer to determine factors leading to tax evasion and initiate proceedings within the specified time frame. Such power is to be exercised year by year. Where a precondition exists for more than one financial year, the officer should issue the separate SCN for different financial years as the time limit available for adjudication is based on the due date of furnishing of annual return. Consolidated SCN, covering multiple Financial years, should be issued only in circumstances where the statutory provision provides for a common period for initiation and completion of the adjudication, such as Section 28 of the Customs Act and Section 11A of the erstwhile Central Excise Act. Further, consolidated SCN would involve a higher amount and in case of an adverse order, the Assessee is required to make a higher pre-deposit for preferring a statutory appeal. This could not have been the Scheme of the statutory provisions which are expected to adhere to principles of fairness in taxation.

Accordingly, the impugned order is upheld.

Following is a Detailed order:

1. Brief Facts of the case

M/s Lakshmi Mobile Accessories (“The Respondent” or “The Assessee”), challenged the show cause notice issued under section 74 of CGST Act, 2017.

A single SCN was issued to demand differential tax, interest and penalty on account of suppression of turnover during the financial years 2017-18 to 2023-24.
The Assessee filed the writ petition challenging the SCN on the Ground that the Department has issued consolidated notice for 6 different financial years and the Assessee was prejudiced to submit the reply in respect of each assessment year by the time limit prescribed in Section 74(10) of the CGST/SGST Act for the earliest of the six financial years namely 2017-18.
The Ld. Single Judge, however, considered the contention of the assessee that issuing a composite order covering all the financial years from 2017-18 to 2023- 24 would prejudice the assessee concerning those assessment years where the time limit would not expire by 07.02.2025.
07.02.2025 was the last date for passing orders in respect of assessment year 2017-18 and not for other Assessment years.
Therefore, the Ld/ Judge permitted the department to pass appropriate orders for 2017-18 within the period of limitation prescribed under Section 74(10) of the CGST Act.
However, rights were reserved to pass separate orders for each of the other assessment years mentioned in the SCN after granting reasonable opportunity of hearing to the assessee under law.
Aggrieved by the order, the Department filed the Writ before Hon’ble High Court of Kerala challenging such order.

2. Legal Extract

The relevant legal extract is reiterated below for ready reference:

“74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised because of fraud or any wilful misstatement or suppression of facts.

(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised because of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.

(2) The proper officer shall issue the notice under sub-section (1) at least six months before the time limit specified in sub-section (10) for issuance of order.

…

(9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order.

(10) The proper officer shall issue the order under sub-section (9) within five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund.”

3. Contention of the Department

The Department contended that:

The learned Judge ought not to have permitted the passing of separate orders since there is no provision envisaged under the CGST Act for issuing separate notices and orders for each financial year.
The request for cross examination of witnesses would only protract the proceedings, and the learned Single Judge ought not to have permitted the passing of separate orders concerning a single show cause notice

4. Analysis and Findings by the Hon’ble High Court:

The Hon’ble High Court made the following analysis and findings:

a. Time Limit under Section 74 of CGST Act:

Provisions of Section 74 are contrary to the contention of the Department. There is no mandate under Section 74 for the issuance of a consolidated SCN covering various assessment years.
Section 74(1) only requires the proper officer to arrive at a subjective satisfaction regarding any evasion of tax and on arriving at the said satisfaction, the proper officer is required to issue a SCN to the assessee.
Section 74(2) specifies the time limit within which the SCN should be issued under section 74(1).
The time limit is at least 6 months before the time specified under Section 74(10) for the issuance of an order of adjudication.
As per Section 74(10), the order under section 74(9) should be passed within 5 years from the due date for furnishing of annual return for the concerned financial year.

b. Single SCN For multiple years under Section 74

Section 74 empowers the proper officer to determine factors leading to tax evasion and initiate proceedings within the specified time frame.
The said exercise is to be conducted concerning each of the years in which such pre-conditions exist for the invocation of the power under Section 74(1).
However, where the pre-conditions exist for more than one financial year, the proper officer should issue separate SCNs to cover the different financial years as the time limit available for adjudication of the SCNs is based on the due date of furnishing of annual return.

c. Cases where consolidated SCNs are Permitted

In our view, consolidated SCNs covering multiple financial years can be issued only in circumstances where the statutory provision provides for a common period for initiation and completion of the adjudication.
For instance, under Section 28 of the Customs Act, a SCN invoking the extended period of limitation of 5 years has to cover a prior period of five years ending with the date of issuance of the SCN.
Similar was the provision under Section 11A of the erstwhile Central Excise Act.
Under both of the above provisions, the SCN issued, irrespective of whether it covered a single financial year or multiple years, had to be adjudicated within a fixed period of 1 year from the date of the SCN.

d. Adjudication under CGST Act:

The scheme of adjudication is different under the CGST Act.
Under Section 74 of the CGST Act, the end termini for adjudication varies for each financial year as the same is based on the due date of annual return of the Financial year and not the date of SCN.
Issuing a consolidated SCNs covering various financial years would cause prejudice to an assessee who would not get the full period envisaged for adjudication under the Statute, if that period is limited by the limitation period prescribed in relation to an earlier financial year.
In the present case, the proximate expiry of the limitation period under Section 74(10) is only about one of the six financial years, the contentions of the assessee and the opportunity available to an assessee for adducing evidence concerning the other years cannot be rendered illusory by forcing upon the assessee the period of limitation prescribed under Section 74(1) for passing the final order concerning the earliest financial year [2017-18].
The statutory period available for an assessee cannot be curtailed by an unnecessary act on the part of the Department.
Further, if a consolidated SCN is issued for various financial years, the total amount of tax, penalty etc. may increase exponentially depending upon the number of years. The determination of tax, penalty, etc. would be in respect of all the financial years put together.
That would go against the provisions of Section 74(9) and (10) which specifically refer to the “financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates” while stipulating the last date for passing the adjudication order.
A consolidated notice would also result in a consolidated adjudication order and in the event of an adverse order, the assessee would be required to deposit a higher fee or pre-deposit to prefer a statutory appeal.
This could not have been the Scheme of the statutory provisions which are expected to adhere to principles of fairness in taxation.

5. Order

The Hon’ble High Court held where the pre-conditions, as specified under section 74(1) of CGST Act, exists for more than one financial year the proper officer should issue separate SCNs to cover the different financial years as the time limit available for adjudication of the SCNs is based on the due date of furnishing of annual return. Therefore, there is no reason to interfere with the impugned judgment of the Ld. Single Judge.