Section 63 Assessment Mandatory Before GST Recovery from Unregistered Persons: Madras High Court
Overview
The Madurai Bench of the Madras High Court has delivered a significant ruling clarifying the correct procedural pathway that GST authorities must follow before initiating tax recovery proceedings against unregistered persons. The Court quashed a show cause notice issued under Section 74 of the respective GST enactments against an unregistered educational institution, holding that the Department was first obligated to invoke the assessment mechanism under Section 63 before proceeding with any recovery action.
Background of the Case
The Petitioner and the Impugned Notice
The petitioner in this matter — Queen Mira International School — is an educational institution that had not obtained registration under the applicable GST enactments. The fifth respondent issued a Show Cause Notice dated 27.08.2026 bearing reference No.06/2026-27-GST/SUP/WEST RANGE, proposing recovery of tax under Section 74 of the respective GST enactments on the ground that the institution had neither registered with the tax department nor discharged its tax liability on the services it rendered.
The Petitioner's Contentions
Senior Counsel appearing for the petitioner advanced two primary arguments before the Court:
Exemption Claim: The petitioner's services were exempt from GST by virtue of Serial No. 66 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as further amended by Notification No. 2/2018-Central Tax (Rate) dated 25.01.2018. Since the institution fell squarely within the exempted category, there existed no foundational basis for issuing the impugned notice.
Procedural Impropriety: Even setting aside the exemption question, the Department had adopted an incorrect legal route by invoking
Section 74directly against an unregistered person, bypassing the specific and mandatory assessment provision underSection 63of the respective GST enactments.
The Court's Analysis
On the Exemption Question
The Court acknowledged that the question of whether the petitioner was genuinely entitled to the claimed exemption under the aforementioned notifications was a matter that required adjudication by the competent statutory authorities under the GST framework. The Court did not express any final view on the merits of the exemption claim, leaving it open for determination through the appropriate legal process.