Madras High Court: Section 73 Does Not Require Three-Month SCN-to-Order Gap; Contradictory GST Orders Set Aside

Background of the dispute

Raj Machine Tools challenged two separate GST assessment orders relating to the same financial year, 2021-22. Both orders were issued on 13 November 2025 under Section 73 of the CGST and TNGST enactments.

The taxpayer raised two principal objections. First, it argued that Section 73(2) required a minimum interval of three months between the show cause notice and the adjudication order. Second, it submitted that the two assessment orders were internally contradictory because they treated the same supplies differently.

The petitioner also offered to deposit 25% of the disputed tax demand arising from one of the orders if both matters were remanded for fresh consideration.

What Section 73(2) actually requires

Section 73(2) requires the proper officer to issue the notice at least three months before the limitation deadline specified in Section 73(10) for passing the adjudication order.

Section 73(10), as applicable to the dispute, prescribed the outer time limit for issuing the order. The High Court read both provisions together and held that the three-month rule works backward from the statutory limitation deadline. It does not automatically create a compulsory three-month waiting period between every notice and every order.

The purpose of Section 73(2) is to prevent an officer from issuing a notice very close to the expiry of the adjudication limitation period and then completing the proceedings hurriedly.

No mandatory three-month gap between notice and order

The High Court rejected the contention that an adjudication order becomes invalid merely because it is passed within three months of the show cause notice.

According to the Court, where the notice was issued at least three months before the statutory deadline under Section 73(10), Section 73(2) is satisfied. A separate mandatory interval of three months between the notice date and order date cannot be added to the provision.

The Court did not accept the contrary interpretation placed before it on the basis of the Bombay High Court decision in AM Market Places Private Limited v. Union of India.

Reasonable opportunity is still compulsory

Although the Court rejected a fixed three-month waiting period, it made clear that the taxpayer must receive a reasonable interval to understand the allegations, prepare a reply and contest the proposed tax demand meaningfully.

The correct test is therefore not whether exactly three months elapsed. The authority must examine whether the time and procedure actually provided a fair and reasonable opportunity in the circumstances of the case.

An order passed with undue haste may still be vulnerable if the taxpayer could not respond effectively, even though Section 73(2) itself does not prescribe a compulsory three-month notice-to-order interval.

Why the two assessment orders were contradictory

The first assessment order proceeded on the basis that input tax credit had been wrongly availed and utilised in relation to exempt supplies.

The second order, concerning the same assessment period, proceeded on the opposite basis that the supplies were taxable and not exempt. The High Court found merit in the taxpayer's objection because the two conclusions could not comfortably stand together without proper examination.

This inconsistency, rather than the alleged absence of a three-month gap, became the decisive reason for setting aside the orders.

Madras High Court's final directions

The High Court set aside both assessment orders and remanded the matters to the proper officer for reconsideration. The relief was made subject to Raj Machine Tools paying 25% of the disputed tax demand relating to W.P. No. 25946 of 2026 within 30 days, after adjusting recoveries already made, if any.

After the payment, the proper officer must provide a reasonable opportunity to the taxpayer and issue fresh orders within three months. The Court also clarified that the officer may examine afresh whether the supplies are actually exempt.

Upon fulfilment of the payment condition, the bank attachment is to be lifted. The connected miscellaneous petitions were closed without an order as to costs.

Important practical distinction under Section 73

• Three months before the limitation deadline: Section 73(2) requires the show cause notice to be issued at least three months before the outer deadline for the adjudication order.
• Not necessarily three months after the notice: the provision does not impose a universal three-month waiting period before an order can be passed.
• Reasonable response time remains essential: the taxpayer must receive a meaningful opportunity to reply and be heard.
• Consistency in adjudication is necessary: two orders for the same period should not proceed on mutually inconsistent tax positions without a reasoned factual and legal basis.

Practical lessons for GST taxpayers

• Check the notice date against the statutory limitation deadline under Section 73(10), not only against the order date.
• Preserve the show cause notice, reply, hearing communications and final order.
• Identify contradictory findings across notices or orders relating to the same transactions and assessment period.
• Explain how inadequate time caused actual prejudice if the order was passed hurriedly.
• Verify whether input tax credit allegations and the taxability classification are logically consistent.
• Follow conditional remand directions and payment deadlines carefully to preserve the relief granted by the Court.

Key takeaways

• Section 73(2) does not mandate a fixed three-month gap between a show cause notice and the adjudication order.
• The notice must be issued at least three months before the limitation period for passing the order expires.
• A reasonable opportunity to respond is still required under fair adjudication principles.
• The two GST orders were set aside because they adopted contradictory positions on whether the same supplies were exempt or taxable.
• Fresh orders must be passed after reconsideration and a reasonable opportunity, subject to the payment condition imposed by the High Court.

Conclusion

Raj Machine Tools provides an important clarification on the timing rule in Section 73. The three-month requirement protects the notice stage from being pushed too close to the statutory deadline. It is not an automatic three-month standstill between notice and adjudication.

At the same time, the ruling confirms that GST adjudication must remain fair, reasoned and internally consistent. Even when the statutory timing objection fails, contradictory findings on the same supplies may justify setting aside the orders and directing a fresh decision.