Mandatory Three-Month Gap Required Between GST Show Cause Notice And Final Order: Bombay High Court

The Bombay High Court at Nagpur has set aside a GST adjudication after holding that tax authorities are required to maintain the statutory minimum gap of three months between issuing a show cause notice and passing the final order.

The court said that failure to do so renders the proceedings unsustainable.

A Division Bench of Justice Anil L Pansare and Justice Nivedita P. Mehta said, "we hold that it is mandatory to keep gap of three months between issuance of notice and passing final order under subsection (2) read with sub-section (10) of Section 73 of the CGST Act."

The ruling came on a writ petition filed by A. M. Marketplaces Pvt. Ltd., which had challenged a show cause notice dated May 15, 2024, issued under Section 73(2) of the CGST Act, and a final order dated July 9, 2024, passed under Section 73(10).

The petition questioned the validity of the adjudication on the ground that the time gap between the notice and the final order as required by the Act was not maintained.

The tax department argued that the three-month period mentioned in Section 73(2) applies only in relation to the outer time limit prescribed for completing adjudication under Section 73(10) and does not prevent authorities from passing final orders earlier where notices are issued well within time.

Rejecting this contention, the bench observed that the argument “does not deal with the crucial reason” for prescribing the three-month gap.

The court said that “multiple activities are to be performed in the intervening period which includes following principles of natural justice, opportunity of payment of tax etc.”

It further observed that “the rationale behind three month's time is to afford meaningful opportunity of hearing to the persons like the petitioner,” and that if this time is shortened, the requirements under sub-sections (3) and (5) of Section 73 would not be achieved.

Applying this reasoning, the court noted that the notice issued on May 15, 2024, and the final order passed on July 9, 2024, were separated by only about one month and twenty-four days.

Holding the adjudication to be unsustainable, the bench quashed the show cause notice and the final order and remanded the matter to the authority for fresh consideration in accordance with law.

For Petitioner: Advocates Anurag Soan with Onkar Bhope

For Respondents: Advocate Ketki Jaltare Vaidya, Advocate for respondent nos. 1, 3 & 4, Advocate A. J. Gohokar, AGP for respondent nos. 2 and 5