Mandatory Three-Month Gap Between GST Show Cause Notice and Adjudication Order: Bombay High Court Analysis

The procedural integrity of tax adjudication is a cornerstone of the Goods and Services Tax (GST) regime. A critical question recently addressed by the judiciary is whether the statutory timeline prescribed for issuing a Show Cause Notice (SCN) acts merely as a limitation period for the Revenue Department or whether it establishes a mandatory minimum duration for the assessee to defend their case.

In a significant ruling, the Hon'ble Bombay High Court, in the case of A. M. Marketplaces Pvt. Ltd. Vs Union of India, has clarified the interpretation of Section 73(2) read with Section 73(10) of the Central Goods and Services Tax Act, 2017 (CGST Act). The Court held that maintaining a minimum gap of three months between the issuance of an SCN and the passing of a final order is not discretionary but mandatory. This decision reinforces the principles of natural justice and ensures that the procedural safeguards embedded in the Act are not rendered nugatory by hasty adjudication.

The primary legal issue presented before the Bombay High Court revolved around the temporal relationship between the issuance of a notice and the final adjudication order.

Under the CGST Act, Section 73 governs the determination of tax not paid or short paid for reasons other than fraud or willful misstatement. The dispute centered on two specific sub-sections:

  1. Section 73(10): This provision sets the outer limit for passing an order, stating that the proper officer must issue the order within three years from the due date for furnishing the annual return for the relevant financial year.
  2. Section 73(2): This provision mandates that the proper officer shall issue the notice under Section 73(1) at least three months prior to the time limit specified in Section 73(10).

The Revenue Department has often interpreted these provisions to mean that Section 73(2) only establishes a cut-off date relative to the three-year limitation. Consequently, they argued that if a notice is issued well within the limitation period, the final order could be passed shortly thereafter, even if the gap is less than three months.

The petitioner, A. M. Marketplaces Pvt. Ltd., challenged this interpretation, asserting that the three-month period is a statutory right granted to the assessee to prepare a defense, irrespective of when the limitation period expires.

Factual Matrix of the Case

In the instant case, the proper officer issued a Show Cause Notice to the assessee on 15 May 2024. Subsequently, the final adjudication order was passed on 9 July 2024.