Kerala High Court
M/S. Tharayil Medicals vs The Deputy Commissioner on 8 April, 2025
Author: A.K.Jayasankaran Nambiar
Bench: A.K.Jayasankaran Nambiar
WA No.627 of 2025 1 2025:KER:30805
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE EASWARAN S.
TUESDAY, THE 8TH DAY OF APRIL 2025 / 18TH CHAITHRA, 1947
WA NO. 627 OF 2025
AGAINST THE JUDGMENT DATED 14.11.2024 IN WP(C) NO.40063
OF 2024 OF HIGH COURT OF KERALA
APPELLANT(S)/PETITIONER :
M/S. THARAYIL MEDICALS,
5/499, EAST FORT, THRISSUR,
REPRESENTED BY ITS MANAGING PARTNER,
T.D. WILSON, PIN - 680005
BY ADVS.
K.KRISHNA
ACHYUTH MENON
NIRMAL KRISHNAN
RESPONDENT(S)/RESPONDENT :
1 THE DEPUTY COMMISSIONER,
AUDIT DIVISION-IV, TEAM - 7,
STATE GOODS & SERVICE TAX DEPARTMENT,
SECOND FLOOR, SGST DEPARTMENT,
POOTHOLE,THRISSUR, PIN - 680004
2 THE DEPUTY COMMISSIONER,
AUDIT DIVISION-IV, TEAM - 7,
STATE GOODS & SERVICE TAX DEPARTMENT,
SECOND FLOOR, SGST DEPARTMENT,
POOTHOLE, THRISSUR,
PIN - 680004
BY SRI. VK SHAMSUDHEEN, SR.GP
THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON
08.04.2025, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
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"C.R"
DR. A.K. JAYASANKARAN NAMBIAR &
EASWARAN S., JJ.
--------------------------------
W.A. No.627 of 2025
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Dated this the 8th day of April, 2025
JUDGMENT
Easwaran S.,J.
Does the scheme of CGST/SGST Act empowers the proper officer
to issue a composite notice for different assessment years is the question
raised before us in this intra court appeal.
2. The brief facts necessary for the disposal of the writ appeal are
as follows:
The appellant/writ petitioner was served with a show cause notice
under Section 74 of the CGST/SGST Act dated 5.8.2024 proposing to
initiate proceedings under Section 74(10) of the CGST/SGST Act for the
assessment years 2017-2018, 2018-2019, 2019-2020, 2020-2021 and
2021-2022. In the aforesaid notice, the proper officer concluded that, for
different assessment years, the appellant/writ petitioner had applied
incorrect HSNs, and therefore, the rate of tax applied is incorrect and
thus proposed a reassessment finding that there is a wrong application
of tax rate at Rs.21,13,080/- (CGST - Rs.10,56,540/ - SGST-
Rs.10,56,540/-). The appellant immediately approached this Court by
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the writ petition questioning Ext.P1 show cause notice on the ground
that, going by the decision of the Karnataka High Court in Writ Petition
No.16500 of 2024 (M/s Bangalore Golf Club V. Assistant Commissioner
of Commercial Taxes), a composite show cause notice is not permissible
under law. The learned Single Judge disposed of the writ petition,
relegating the petitioner to file a suitable reply to the show cause notice
by taking up any issue specific to any year and also directed the authority
to independently consider the said issue while passing the final order of
adjudication. Aggrieved by the said judgment, the present intra-court
appeal is preferred by the appellant/writ petitioner.
3. Heard Smt. Krishna K., the learned counsel appearing for the
appellant and Sri. V.K. Shamsudheen, the learned Senior Government
Pleader appearing on behalf of the respondents.
4. Smt. Krishna K., the learned counsel appearing for the
appellant, primarily contended that the composite show cause notice
issued by the proper officer will certainly act in detriment to the interest
of the assessee, especially since, the proper officer will proceed to assess
the petitioner in accordance with the proposal contained in the show
cause notice for different assessment years, for which, the time
prescribed for the completion of the proceedings under Section 74 of the
Act is yet to expire. In support of her contentions, the learned counsel
relied on the decision of this Court in Joint Commissioner (Intelligence
& Enforcement) v. Lakshmi Mobile Accessories [(2025) 171
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taxmann.com 214 (Kerala)], wherein it was held by the Division Bench,
wherein one of us was a party [DR. A.K.Jayasankaran Nambiar (J)] that
the proper officer cannot issue consolidated orders by clubbing into
different assessment years for the purpose of determining the liability
under Section 74 of the Act. It is further pointed out that the High Court
of Karnataka in M/s Bangalore Golf Club (Supra) had taken a view that
a composite show cause notice by clubbing different assessment notices
cannot be issued. It is further pointed out that the Madras High Court in
M/s Titan Company Limited v. Joint Commissioner of GST [W.P.
No.33164 of 2023] also has taken a similar view.
5. On the other hand, Sri. V.K. Shamsudheen, the learned Senior
Government Pleader appearing on behalf of the respondents relied on
the decision of the Division Bench of the Bombay High Court in Riocare
India Private Limited v. Assistant Commissioner CGST [(2025) 26 Centax
339 (Bom.)] to contend to the proposition that there is nothing in the
CGST/SGST Act, 2017 prohibiting the proper officer from issuing the
show cause notice by clubbing different assessment years.
6. We have considered the rival submissions raised across the Bar.
7. Section 74(1) and (2) of the CSGT Act reads as follows:
Section 74. Determination of tax not paid or short paid or
erroneously refunded or input tax credit wrongly availed or
utilised by reason of fraud or any wilful- misstatement or
suppression of facts.-
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(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 by reason 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 prior to the time limit specified in sub-section
(10) for issuance of order.
8. Sub-section (2) of Section 74 mandates that the notice under
sub-section (1) of Section 74 be issued at least six months prior to the
time limit prescribed under sub-section (10) for issuance of the order.
Turning to sub-section (10) of Section 74, the proper officer is required
to issue notice under sub-section (9) within a period of five years from
the due date of furnishing the annual return.
9. A cumulative reading of Section 74(1), (2) and (10) leaves no
room for any doubt that each assessment year can be proceeded
separately by the assessing officer or the proper officer as the case may
be for the purpose of determining whether there is any willful
misstatement or suppression of facts. The time limit prescribed under
sub-section (10) of Section 74 of the Act shows that the order under sub-
section (9) has to be issued within a period of five years from the due
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date of furnishing of the annual return for the financial year to which the
tax is paid or short paid or input tax credit wrongly availed or utilised.
This means that for each assessment year, the time limit prescribed for
the completion of the proceedings is distinct and different. It is in this
context that we have to consider the argument of Smt. Krishna, the
learned counsel appearing for the appellant that a separate show cause
notice is required for the purpose of each assessment year.
10. When we consider the aforesaid arguments in the light of the
principles laid down by us in Lakshmi Mobile Accessories (supra), we
find that subsection (1) of Section 74 requires the proper officer to arrive
at a subjective satisfaction regarding any specified factors which lead to
evasion of tax. Thus the assessee will be entitled to raise separate
defence for each assessment year. We have already deprecated the
practice of the assessing officer from proceeding to complete the
assessment under Section 74 by issuing composite orders. Having held
so, the pertinent question before us would be, can the proper officer
issue a composite show cause notice and then proceed to pass separate
orders for each assessment year. We find that while deciding the case
Lakshmi Mobiles Accessories (supra) this issue did not fall for our
consideration.
11. When we read sub-sections (9) and (10) of Section 74, which
specifically refer to " financial year to which the tax not paid or short
paid or input tax wrongly availed or utilised relates" while passing the
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final order of adjudication, it presupposes that independent show cause
notice be issued to the assessee for each different years of assessment
while proceeding under Section 74. We are constrained to hold so
because, as we noted earlier, the assessee can raise a distinct and
independent defence to the show cause notice issued in respect of
different assessment years. In other words, the entitlement to proceed
and assess each year being separate and distinct, and further the time
limit being prescribed under the Statute for each assessment year being
distinct, we see no reason as to why we should not hold that separate
show cause notices are required before proceeding to assess the
assessee for different years of assessment under Section 74.
12. There is yet another reason why we should hold that separate
show-cause notices are issued for different assessment years. There may
be cases where proceedings are initiated in the guise of a show cause
notice under Section 74 wherein, on facts, the case of the assessee will
fall under Section 73 of the CGST/SGST Act. We find that insofar as the
time limit prescribed under Section 73(10) of the CGST/SGST Act is
concerned, it is three years instead of five years and further, the aspect
of fraud, willful misstatement and suppression do not arise for
consideration in proceedings under Section 73. Thus, by issuing a
composite notice, the assessing authority, cannot bypass the mandatory
requirement of Section 73 to complete the assessment by falling back on
a larger period of limitation under sub-section (10) of Section 74. If such
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a recourse is permitted, then certainly the said action would be a
colourable exercise of the power conferred by the statute and will offend
express provisions of the CGST/SGST Act qua limitation. This reason
would also prompt us to hold that in cases where the assessing officer
finds that an assessee is liable to be proceeded either under Section 73
or under Section 74 for different assessment years, a separate show
cause notice has to be issued. Still further, since proper officer need to
issue a show cause notice prior to 6 months to the time limit prescribed
under sub-section (10) of Section 74, if a composite notice is issued, the
assessee will be prejudiced inasmuch as the availability of a lesser period
to submit a proper and meaningful explanation. This also is a strong
indicative factor which would prompt us to hold in favour of the assessee.
13. We find normally a writ petition against the show cause notice
is not to be entertained by the writ court as held by us in Deputy
Commissioner of Intelligence v. Minimol Sabu (W.A. No.238 of 2025), we
have carved out the exceptions like in a case where a total lack of
inherent jurisdiction being in issuance of show cause notice under
Section 74 of the CGST/SGST Act. In such circumstances, the writ
petitioner need not be relegated to the alternative remedy by way of
appeal.
14. In the present case, we find that since the challenge to the
show cause notice goes to the root of the jurisdiction of the proper officer
in issuing the same and we hold that the writ petition is perfectly
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maintainable.
15. Having concluded as above, we find that the learned Single
Judge failed to take note of these intricate questions of law involved
while interpreting the provisions of Section 73 read with Section 74 of
the CGST/SGST Act and thus failed to appreciate the contentions of the
appellants in its true perspective and therefore erred egregiously in
dismissing the writ petition relegating the petitioner to prefer reply to
the notice before the adjudicating authority. Thus, we are of the
considered view that the appellant has made out a case for interference
and hence entitled to succeed.
16. Accordingly, the appeal is allowed. Ext.P1 show cause notice to
the extent it relates to the assessment years 2018-2019, 2019-2020,
2020-2021, 2021-2022 stand set aside and Ext.P1 show cause notice to
the extent it relates to 2017-2018 is sustained. We are informed that the
period for completion of the assessment for the year 2017-2018 has
expired on 7.2.2025 and that no final order has been passed by the
assessing authority under the CGST/SGST Act. Since we have condoned
the delay in preferring the appeal and that the period of completion of
assessment having expired in the meantime and that since we have
interfered with the show cause at this stage due to the reasons explained
above, we feel it is only just and proper that the entire exercise be re-
done by the authorities concerned. Therefore, while sustaining Ext.P1
notice for the period 2017-2018, we make it clear that the period spent
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before this Court from 8.11.2024 till today shall stand excluded for the
purpose of computing the period of limitation under sub-section (10) of
Section 74. Thus, we permit the appellant to submit his reply to Ext.P1
notice within a period of three weeks from today and further grant
liberty to the respondents to complete the adjudication within a period
of one month thereafter. We further make it clear that the respondents
would be at liberty to issue separate show-cause notices for the
assessment years 2018-2019, 2019-2020, 2020-2021 and 2021-2022
separately and proceed in accordance with law.
The writ appeal ordered accordingly.
Sd/-
DR. A.K. JAYASANKARAN NAMBIAR
JUDGE
Sd/-
EASWARAN S.
JUDGE
NS
