Court Holds Educational Institution Must First Be Assessed as Unregistered Person Before Tax Recovery Under Section 74; Exemption Claims to be Considered in Assessment Proceedings
In a significant ruling dated September 24, 2026, the Madurai Bench of the Madras High Court quashed a show cause notice issued under Section 74 of the Goods and Services Tax (GST) law against the Managing Director of M/s. Queen Mira International School. The notice, which proposed recovery of tax on the ground of non-registration and non-payment, was held to be unsustainable without first invoking the assessment procedure under Section 63 of the GST enactment.
The petitioner, an educational institution, contended that it was exempt from GST under Serial No. 66 of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, as amended by Notification No. 2/2018-Central Tax (Rate) dated January 25, 2018. The petitioner argued that since it was exempt, no notice for recovery of tax under Section 74 could be issued.
The Court, presided over by Justice C. Saravanan, clarified that the question of exemption is a matter to be adjudicated by the GST authorities. However, the procedure prescribed under the GST law mandates that for an unregistered person-like the petitioner who had not obtained GST registration despite being liable-the tax department must first initiate assessment proceedings under Section 63. This section empowers the proper officer to assess the tax liability to the best of their judgment and requires giving the person an opportunity of being heard before passing any final order.
The Court emphasized that Section 63 is a necessary preliminary step before proceeding under Section 74, which deals with the recovery of tax from registered persons or post-assessment. The Court relied on a recent precedent from the same bench in MRF Limited v. Additional Director DGGI Delhi Zonal Unit (2026) 155 GSTR 91, which reinforced this procedural mandate.
Accordingly, the Madras High Court quashed the impugned show cause notice dated August 27, 2026, issued by the fifth respondent authority. The Court granted liberty to the tax department to issue a fresh notice under ASMT-14 pursuant to Section 63 for assessment of the petitioner's tax liability. The petitioner was also permitted to raise all contentions, including the claim of exemption under the cited GST notifications, during the assessment proceedings.
This judgment underscores the importance of following due procedural safeguards in GST tax assessments, especially in cases involving unregistered persons. It also clarifies that exemption claims by educational institutions must be examined in the assessment process rather than at the stage of recovery notices.
The writ petition was disposed of with no order as to costs.
Bottom Line:
GST - Show cause notice under Section 74 against an unregistered person is unsustainable without first invoking Section 63 for assessment of unregistered persons - Educational institution claiming exemption can raise all grounds, including exemption, in proceedings under Section 63.
Statutory provision(s):
Section 63, Section 74 of the respective GST enactments; Notification No. 12/2017-Central Tax (Rate), Notification No. 2/2018-Central Tax (Rate)
