“Illegal, Arbitrary & Colourable Exercise Of Power": Karnataka High Court Quashes Consolidated GST Show Cause Notice Clubbing Multiple FYs

The Karnataka High Court held that issuing a consolidated show cause notice for multiple financial years is illegal, arbitrary and contrary to the provisions of the CGST Act. The bench opined that a composite notice for multiple financial years enables the Department to blur the statutory distinction between Section 73 (non-fraud, etc.,- 3 year limitation) and Section 74 (fraud etc., - 5 year limitation). If certain years fall under Section 73, but the entire block is treated under Section 74, the authority artificially extends limitation and bypasses mandatory statutory constraints and if such a course is permitted it clearly tantamounts to a colorable exercise of power which is impermissible in law. Justice S.R. Krishna Kumar explained that ITC (Input Tax Credit) entitlement under Section 16(4) of the CGST Act is itself year-bound; each invoice pertains to a particular financial year, and credit can be availed only up to the statutory cut-off date for that year; ITC for FY 2019-20 cannot be mixed with ITC for Financial Year 2020-21 or any later year. In the case at hand, the assessee/petitioner was engaged in the business of real estate development. A consolidated show cause notice was issued to the assessee for the tax periods/financial years from 2019-20 to 2023-24 proposing a demand of Rs. 11,86,86,292/- along with interest and penalty. The assessee argued that since the show cause notice is a composite notice encompassing multiple/several financial years/assessment periods from 2019-20 to 2023-24 and the demands contained therein pertain/relate to as well as seek and purport to bunch/consolidate/club multiple tax periods/financial years, the impugned show cause notice issued under Section 73/74 of the CGST/KGST Act, 2017 is illegal and arbitrary. The department submitted that in the absence of any bar/embargo in any of the provisions of the CGST/KGST Act, which prohibits raising demands on the tax payer for more than one financial year/tax period, it is permissible in law to bunch/club/consolidate multiple tax periods/financial years in a single show cause notice especially when the transactions in question traverse beyond and span across several/multiple financial years/tax periods. The bench referred to Sections 73 and 74 of the CGST Act stated that a conspectus of the provisions of the CGST/KGST Act will indicate that the said Act, in its very architecture and statutory framework, is designed around financial-year-specific assessment, and every stage of the statutory process i.e., registration, maintenance of accounts, filing of returns, reconciliation, determination of liability, adjudication and limitation, are all structured independently for each financial year. A consolidated show cause notice collapses this entire legislative framework, causing jurisdictional illegality. The bench opined that a consolidated allegation of “wrong ITC for five years” is conceptually flawed because ITC entitlement is statutorily frozen one financial year at a time; in fact, a consolidated notice also creates substantive prejudice; each year involves different turnover, ITC positions, contracts, amendments in law, accounting treatments, and reconciliations under Sections 37, 38, 39 and 44. The assessee is entitled to give year-wise explanations, year-wise reconciliations, and year-wise legal defences. A single notice covering five years deprives the assessee of this opportunity and violates natural justice, added the bench. The bench held that a composite/consolidated show cause notice would be patently without jurisdiction, apart from being contrary to the statutory architecture/framework and unsustainable in law. The bench opined that the Show cause notice issued by the department to the assessee for the tax periods/financial years from 2019-20 to 2023-24 under Section 74 of the CGST/KGST Act is illegal, arbitrary and contrary to the provisions of the CGST Act. In view of the above, the bench allowed the petition. Case Title: M/s Pramur Homes and Shelters v. The Union of India Case Number: WRIT PETITION NO. 33081 OF 2025 (T-RES) Counsel for Petitioner/Assessee: Bharat B. Raichandani, Raaghul Piraanesh and Chandra Kiran Counsel for Respondent/Department: Jeevan J. Neeralagi Citation No: 2025 LiveLaw (Kar) 440 Click Here To Read/Download Order

“Illegal, Arbitrary & Colourable Exercise Of Power": Karnataka High Court Quashes Consolidated GST Show Cause Notice Clubbing Multiple FYs

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“Illegal, Arbitrary & Colourable Exercise Of Power": Karnataka High Court Quashes Consolidated GST Show Cause Notice Clubbing Multiple FYs

Mehak Dhiman

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