Division Bench Rules that Consolidation of Different Tax Periods in One Notice is Impermissible, Upholding Year-Wise Assessment and Recovery Framework
In a significant decision impacting GST assessment procedures, the Bombay High Court (Nagpur Bench, Division Bench) on August 28, 2026, ruled in favor of M/s. Mehadia & Sons C & F Division by quashing a show cause notice that consolidated tax periods spanning three financial years under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act). The Court held that issuing a single notice covering multiple financial years or tax periods is contrary to the statutory scheme of the CGST Act, which mandates assessment and recovery of tax on a year-wise basis.
The petitioner challenged a show cause notice dated April 24, 2025, issued by the Assistant Commissioner of CGST & Central Excise, Nagpur-II, alleging suppression of taxable value for financial years 2021-22 to 2023-24. The petitioner contended that clubbing different years in one notice was impermissible. Reliance was placed on the earlier Division Bench judgment in M/s. Milroc Good Earth Developers vs. Union of India (2025), which emphasized the statutory mandate of year-wise assessment and the five-year limitation period running separately for each financial year under Sections 73(10) and 74(10) of the CGST Act.
The Court noted that the CGST Act defines a "tax period" as the period for which a return is filed, and while returns may be monthly, the annual return for each financial year forms the basis for assessment. Issuing a consolidated show cause notice for multiple years would violate the limitation timelines and impair the taxpayer's right to a fair opportunity to respond on a year-by-year basis.
Respondents argued that the Delhi High Court's contrary view in M/s. Mathur Polymers vs. Union of India (2025) permitted consolidated notices in cases involving fraudulent input tax credit claims spanning multiple years. However, the Bombay High Court distinguished this, noting that the Supreme Court's dismissal of the Special Leave Petition against the Delhi judgment was an in limine dismissal without merit adjudication, and that the principle of precedent within Bombay jurisdiction requires adherence to the Bombay High Court's prior rulings.
The Court further observed that any ongoing challenges to the Bombay High Court's rulings, including referral to a Larger Bench, should not affect the binding nature of its current decision. It granted liberty to the tax authorities to issue fresh show cause notices strictly in accordance with the CGST Act's provisions for individual financial years, thereby preserving the statutory framework and taxpayers' rights.
This judgment reinforces the clear statutory scheme under the CGST Act, emphasizing that each financial year is a distinct tax period for assessment and recovery and that tax authorities must respect the separate limitation periods applicable to each year. It provides clarity and relief to taxpayers against the practice of consolidating multiple years in a single show cause notice, which had been a contentious issue.
Bottom Line:
Under the CGST Act, 2017, the issuance of a show cause notice consolidating multiple financial years or tax periods is impermissible. Each financial year is treated as a separate tax period, and statutory provisions mandate a year-wise assessment and recovery process.
Statutory provision(s):
Central Goods and Services Tax Act, 2017: Sections 2(106), 39, 44, 50, 73, 73(10), 74, 74(10)
