As per Articles 246 and 248 of the Constitution of India, the Union and State Legislatures have the power to make laws concerning matters enumerated in Schedule VII. The Union levied Central Excise Duty and Service Tax on goods and services, whereas the State levied Sales Tax / VAT on the sale of goods. By virtue of Section 2 of the Constitution (One Hundred and First Amendment) Act, 2016, Article 246A was inserted into the Constitution of India, empowering the Union and State governments to levy tax on the supply of goods and services. Further, in the exercise of powers conferred by Article 246A, the Union Legislature introduced the Goods and Services Tax Act, 2017. Similarly, each State Legislature introduced the State GST Act, 2017.

Under GST, provisions regarding the determination of tax liability through the issuance of a show cause notice and the subsequent passing of an order are dealt with under Chapter XV of the Central Goods and Services Tax Act, 2017, wherein Sections 73 and 74 of the Act were incorporated.

Section 74(10) of the GST Act states that the time limitation for passing an order cannot exceed five years from the due date for furnishing the annual return for the relevant financial year. The relevant provision of the said section is reproduced below:

“Section 74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts. —

(10) The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing the annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates or within five years from the date of the erroneous refund.”

Section 74(10) provides that an order determining the tax liability of a person/entity should be passed within five years from the due date for furnishing the annual return for the financial year to which the tax due relates. Upon reading this provision, it is evident that Section 74(10) prescribes a separate limitation for each financial year, and the timeframe to complete the proceedings and issue an order under this section is five years from the due date for filing the annual return for that particular financial year. The Act does not contain any provision allowing the consolidation of different financial years into a single order.

There is no authority under the Central Goods and Services Tax Act, 2017, to group and consolidate multiple tax periods and pass a single order for multiple tax periods. The Act does not provide any procedure for issuing a consolidated order for an entity or person by grouping and consolidating multiple tax periods. Since the language of Section 74(10) specifies “due date for furnishing the annual return for the financial year,” the demand for each tax period must be raised separately.

The Hon’ble Apex Court, in State of Jammu and Kashmir and Others vs. Caltex (India) Ltd., AIR 1966 SC 1350, held that where an assessment encompasses different assessment years, each assessment order must be distinct and treated independently.

Recently, in a similar matter, the Hon’ble Delhi High Court stayed the operation of an impugned order passed by the GST authorities consolidating multiple financial years. The Hon’ble High Court was of the prima facie view that the composite nature of the impugned order rendered it invalid under Section 74 of the Central Goods and Services Tax Act, 2017, for multiple financial years.