Commissioner of Central Tax v. Chimney Hills Education Society: consolidated GST notices held permissible

The procedural posture

The Karnataka decision arrived through an unusual route. Across 2024 and 2025, several Karnataka-based assessees — including Chimney Hills Education Society, manufacturers and service providers in the Bengaluru and Mangaluru zones — had received single consolidated show-cause notices from the Central GST Department under Section 73 (non-fraud cases) or Section 74 (fraud, wilful misstatement or suppression). The notices typically covered the period from 1 July 2017 (the GST commencement date) through 31 March 2023, raising various demands of tax, interest and penalty in a single bundle.

Single-judge benches of the Karnataka High Court had, in several writ petitions, quashed those composite notices as violative of the financial-year-specific scheme of Sections 73/74. The single-judge reasoning drew on the Madras High Court's line in S.P.K. & Co. and on the Bombay High Court's earlier ratio in Milroc Good Earth Developers v. Union of India — both of which had held that the proper officer's authority does not extend to clubbing multiple financial years into a single Section 73(1)/74(1) notice.

The Revenue filed writ appeals before the Division Bench under the Karnataka High Court Act 1961. The lead appeal was Writ Appeal No. 1751 of 2024 (T-RES); a substantial number of connected appeals were tagged. On 26 April 2026, the Division Bench of S.G. Pandit and K.V. Aravind JJ. allowed the appeals, set aside the single-judge orders, and laid down the law of the State that consolidated SCNs are permissible.

The statutory reading

The Bench rested its conclusion on four textual propositions, each tracking the language of Sections 73 and 74.

First, sub-section (1) of both sections uses the unrestricted phrase "any tax" — not "tax for a financial year". The legislature, the Bench reasoned, could easily have written "tax for any financial year" or "tax due for a financial year" if it had intended FY-specific compartmentalisation. It did not. The plain phrasing "any tax which has not been paid or short paid" admits of consolidation across periods.

Second, sub-section (3) explicitly permits supplementary statements for "such periods other than those covered under sub-section (1)". This phrase, on the Bench's reading, expressly recognises the legitimacy of multi-period proceedings. A purely FY-specific reading would render the phrase otiose — there would be no occasion for a supplementary statement covering "other periods" if every period required its own notice.

Third, the limitation period in sub-section (10) — keyed to "the due date for furnishing the annual return for the financial year" — operates as an outer limit per financial year rather than as a partitioning rule that compels separate SCNs per year. The distinction matters. An outer limit prevents the Department from raising stale claims; a partitioning rule would require the Department to issue a separate notice for each year. The Bench read sub-section (10) in the former register.

Fourth, where the grounds of demand and the assessee are common across financial years, administrative efficiency favours a consolidated SCN over a multiplicity of parallel proceedings. The Bench's reasoning here was pragmatic but not unprincipled: a multiplicity of duplicative proceedings serves no party's interest, taxpayers included.

The departure from Madras and Bombay

The Bench expressly declined to follow the Madras High Court line in S.P.K. & Co. and the Bombay High Court's Milroc Good Earth Developers decision. The reasoning was that those decisions read sub-section (10) as a partitioning rule — an inference that, in the Karnataka Bench's view, is not warranted by the statutory text. The Karnataka view preserves the FY-anchored outer limit in sub-section (10) but rejects the inference that the FY anchor compels FY-specific notices.

The timing is striking. The Bombay High Court Division Bench, nine days earlier on 17 April 2026 in M/s Rollmet LLP v. Union of India, had referred the same question to a Larger Bench. Rather than waiting for the Bombay Larger Bench's ruling, the Karnataka Bench delivered an independent answer on the merits. The result is an immediate inter-state split: Karnataka pro-Revenue, Madras pro-assessee, Bombay in flux pending the Larger Bench reference. The Supreme Court will eventually need to settle the question.

What the ruling preserves and what it discards

The ruling preserves three things. First, the sub-section (10) outer limit continues to operate per financial year — a composite SCN that reaches a year barred by the three-year (Section 73) or five-year (Section 74) limitation will still be vulnerable to partial set-aside on limitation grounds. Second, the substantive merits of the demand remain open for adjudication; the Bench's holding is procedural-only. Third, the single judge's discretion to grant interim relief in appropriate cases (where, for example, the composite notice causes demonstrable prejudice) is undisturbed.

The ruling discards the procedural-consolidation defence as a stand-alone ground for quashing. Assessees in Karnataka who have received composite SCNs can no longer move the writ court on the bare ground that the notice covers multiple financial years. They must engage with the substantive demand and, if appropriate, raise limitation under sub-section (10) on a year-by-year basis at the adjudication stage.

The Bench remanded the matters to the single-judge bench (and, where applicable, to the adjudicating authority) for fresh consideration on merits. The procedural objection of "consolidation invalidity" was finally rejected; everything else is on the table for the assessees to contest substantively.

The cross-cutting alignments

Two adjacent 2026 developments give the Karnataka ruling additional doctrinal weight.

First, the Gujarat High Court Division Bench in Maruti Enterprise v. Union of India (May 2026, covered in our GST roundup) upheld the constitutionality of the Section 16(2)(c) input-tax-credit architecture. Together, Karnataka Chimney Hills and Gujarat Maruti Enterprise signal a pro-Revenue tilt in the southern and western High Courts on GST procedural questions in 2026.

Second, the leniency-application and corroboration jurisprudence in cartel cases (most recently reaffirmed at the NCLAT Principal Bench level) has tracked a similar "substance-over-form" trajectory. The Karnataka Bench's willingness to read "any tax" purposively, rather than mechanically tying every notice to a financial year, fits the broader 2026 tendency to prefer functional readings over procedural-formalism in commercial-and-regulatory law.

What now for Karnataka assessees

Revenue authorities across Karnataka will continue — and likely intensify — the practice of issuing composite multi-year SCNs in confidence of the Chimney Hills foundation. The departmental incentive is straightforward: a single composite notice consolidates adjudication, reduces administrative cost, and survives writ challenge in the State.

Assessees in Karnataka who receive composite SCNs should focus on three operational priorities. First, engage substantively with the demand on the merits; the procedural-consolidation defence is foreclosed in the State. Second, preserve limitation challenges under sub-section (10) on a year-by-year basis — a composite notice reaching a year that is time-barred remains vulnerable. Third, maintain disaggregated working papers — ITC reconciliations, output-tax computations, supporting invoices — keyed to each financial year covered by the composite notice, so that partial set-asides can be administered cleanly.

SLPs from the affected assessees are expected before the Supreme Court. The SLPs are likely to be tagged with the Bombay Larger Bench question and any Madras High Court ruling that comes up to the Court. Until the Supreme Court rules, the country will be operating under an inconsistent SCN regime — and practitioners advising multi-State assessees will need to track the divergence carefully.

CBIC may issue a circular providing administrative guidance that minimises taxpayer prejudice — for example, by undertaking that consolidated SCNs will be split for adjudication purposes if the assessee so requests. Such a circular would not bind the Bombay Larger Bench or the Supreme Court, but it would smooth out the operational picture in the interim.

Related on Valkya

• Rollmet LLP v. Union of India: Bombay HC refers consolidated GST SCN question to Larger Bench
• Samarpan Jain v. State of UP: advocate's FIR for filing a GST appeal quashed
• Tata Sons v. Union of India: IGST on arbitral-award settlement
• GST May–June 2026 roundup

Sources

1. Bar and Bench — Notices under Sections 73 and 74 of GST Act are not financial-year-specific: Karnataka High Court: https://www.barandbench.com/news/litigation/notices-under-sections-73-and-74-of-gst-act-are-not-financial-year-specific-karnataka-high-court
2. TaxScan — No bar under GST Act to issue common SCN for different tax periods: Karnataka HC: https://www.taxscan.in/top-stories/no-bar-under-gst-act-to-issue-common-scn-for-different-tax-period-karnataka-hc-upholds-revenues-power-to-issue-consolidated-gst-scn-1446239
3. Supreme Today AI — Karnataka HC OKs GST SCNs for multiple financial years: https://supremetoday.ai/karnataka-hc-oks-gst-scns-for-multiple-financial-years-20260501024
4. LiveLaw — Karnataka High Court GST coverage: https://www.livelaw.in/high-court/karnataka-high-court