Notices under Sections 73 and 74 of GST Act are not financial-year specific: Karnataka High Court

The Karnataka High Court recently held that show-cause notices issued under Sections 73 and 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) are not financial year-specific. [Commissioner of Central Tax & Ors v Chimney Hills Education Society].A Bench of Justices SG Pandit and KV Aravind overturned a single judge's decision which had earlier held that a common show cause notice for multiple financial years was impermissible. It held,"On a combined reading of the provisions of the Act and particularly Sections 73 and 74 of the Act, the irresistible conclusion would be that the proceedings under Sections 73 and 74 of the Act were never intended to be confined to a financial year."Section 73 deals with non-fraudulent tax discrepancies. Section 74 applies to tax evasion involving fraud, willful misstatement, or suppression of facts..The Revenue had issued a show cause notice to the respondents under Section 74 of the Act, for the period from July 2017 to March 2023, alleging willful misstatement or suppression of facts.The respondents challenged the notices, on the ground that under the Act, Sections 73 and 74 are financial year-specific and that show cause notice relating to period beyond financial year or for multiple financial years is impermissible. While a single judge held in the respondents' favour, the Revenue moved an appeal before the Division Bench..The Court held that the tax period defined has to be understood in the context in which the requirement is prescribed and it cannot be confined to a month or a financial year."Significantly, the provisions consciously employ the expression “any period” while providing for issuance of notice...The expression “any period” is not defined under the Act and cannot be equated with “tax period.” A “tax period” denotes the period for which a return is required to be furnished, which may be monthly or annual.".On the contention of the respondents that if show cause notices are confined to a financial year or tax period, the pecuniary jurisdiction would remain at a lower level, the Court said,"It is settled position of law that an assessee has no right to choose the Adjudicating Authority. Merely because combining of more than one financial year, the pecuniary jurisdiction shifts to an officer of the higher rank, no prejudice would be caused to the assessee, since statutory safeguards, remedies and determination of tax would remain as it is.".The Court thus restored the show cause notices and granted the respondents liberty to approach the appellate authority, without raising the plea of limitation..Senior Standing Counsel Advocate Aravind V Chavan and Advocate M Unnikrishnan represented the Revenue.Additional Government Advocate Aditya Vikram Bhat appeared for the State.Senior Advocates A Shankar and KK Chythanya, along with Advocates Pranay Sharma, EI Sanmathi, MN Shankare Gowda, Bharat B Raichandani, Sandeep Huilgol, Vinay N and PB Harish appeared for the respondents. .[Read Judgment]