The Gauhati High Court has upheld the imposition of penalty under Section 122(1A) of the CGST Act on partners, holding that liability is not restricted to the “taxable person” (firm) but extends to “any person” who has retained the benefit of offending transactions and at whose instance such transactions were carried out. The Court emphasised that Section 122 creates distinct categories, “taxable person”, “registered person”, and “any person” and that Section 122(1A) is specifically intended to target individuals behind the transactions, noting that entities like firms or companies cannot commit violations without natural persons being involved.
Further, the Court clarified that there is no statutory bar under Sections 73(1) or 74(1) of the CGST Act, 2017 against issuance of a consolidated show cause notice covering different financial years, nor is there any bar under Sections 73(9) or 74(9) against passing a consolidated adjudication order for different financial years together, so long as the notice and order, for each included period, remain within the limitation framework prescribed under Sections 73(2), 73(10), 74(2), and 74(10).
The Proper Officer’s jurisdiction is founded on the existence of the circumstances specified in Sections 73(1) or 74(1), and not curtailed merely because more than one financial year is covered in a single proceeding. If any part of a consolidated proceeding pertains to a time-barred period, that portion can be severed without invalidating the remainder, added the Court.
A Single Judge Bench of Justice Devashis Baruah examined the scheme of the CGST Act and held that Sections 73 and 74 fall in Chapter XV dealing with “Demand and Recovery”, whereas assessment provisions are separately contained in Chapter XII. It observed that proceedings under Sections 73 and 74 are adversarial and adjudicatory in nature, unlike the forms of assessment contemplated in Chapter XII, and therefore the petitioners’ argument that Section 73/74 proceedings must necessarily be financial year-wise because the statutory scheme is assessment-linked was held to be misconceived.
The Bench further noted that Sections 73(1) and 74(1) do not expressly require separate notices for each financial year, and the restrictions under Sections 73(2) and 74(2) relate only to limitation for issuance of notice. It also placed emphasis on Sections 73(3)/(4) and 74(3)/(4), observing that the expressions “for any period” and “for such periods other than those covered” indicate legislative contemplation of plural periods and support the permissibility of consolidated proceedings.
The Bench also observed that limitation under Sections 73(10) and 74(10) operates independently for each financial year, but that does not create a statutory bar against a consolidated notice or consolidated order, provided each included period is still within the applicable limitation. It clarified that, where a consolidated notice includes one or more periods that are time-barred, the valid and invalid parts can be segregated by applying the doctrine of severability because each financial year constitutes a separate cause of action. The Court expressly disagreed with certain Kerala and Madras High Court decisions that had taken a contrary view, agreed with the Delhi High Court decisions in Ambika Traders and Mathur Polymers, and also agreed with the Karnataka and Allahabad High Courts that there is no bar to a consolidated show cause notice.
Briefly, the petitioner, engaged in works contract services, was audited for FY 2017-18 to 2021-22, following which show cause notices under Section 74(1) for FY 2018-19 to 2021-22 were issued. The proceedings culminated in an Order-in-Original confirming the demand. The petitioner partnership firm faced search and investigation proceedings, summons, and thereafter a collective show cause notice under Section 74(1) read with Sections 122(1A) and 122(3)(a), covering the period from July 2017 to March 2023. Later, the petitioner company was issued a show cause notice under Section 74 clubbing FY 2018-19 to 2020-21, alleging underreporting of taxable turnover and GST evasion.
