FY 2024-25 tax assessment based on wrong s.74 notice instead of s.74A set aside; notice treated as s.74A

The dominant issue was whether an assessment for FY 2024-2025 could be sustained when the tax authority invoked s.74 instead of the applicable s.74A, thereby acting without authority of law. The HC held that issuance of a show cause notice under s.74 and passing the consequential assessment order, when s.74A governed the period, rendered the assessment legally unsustainable; accordingly, the impugned assessment order was set aside. To avoid a futile remand for issuance of a fresh notice within limitation, the HC directed that the existing notice be treated as one under s.74A, required the assessee to file a reply, and directed adjudication on merits thereafter.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether, for the Financial Year 2024-2025, the tax authority had jurisdiction to initiate adjudication by issuing a show cause notice and passing an assessment order under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017, instead of proceeding under Section 74A.

(ii) Upon finding that the assessment order was passed pursuant to an incorrectly-invoked provision, whether the Court should merely set aside the order or also mould relief by permitting the existing show cause notice (issued under Section 74) to be treated as one under Section 74A and require a fresh adjudication on merits with personal hearing.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Jurisdiction to invoke Section 74 for Financial Year 2024-2025

Legal framework (as discussed by the Court): The Court proceeded on the basis that, from 01.04.2024, proceedings are to be initiated in terms of Section 74A of the Act, and not through Section 74, for the relevant period under consideration.

Interpretation and reasoning: The Court accepted the contention that for issues pertaining to the Financial Year 2024-2025, the respondent could not have initiated proceedings under Section 74. It noted the respondent's fair admission that the notice was issued under Section 74 for FY 2024-2025 and that, in view of the introduction of Section 74A, the notice ought to have been issued only under Section 74A, and that no notice could have been issued under Section 74 for that year. Since the assessment order was the culmination of a notice issued under an inapplicable provision, the Court held the respondent acted "without any authority of law".

Conclusion: The assessment order, having been passed pursuant to a show cause notice wrongly issued under Section 74 instead of Section 74A, was held to be without authority of law and was set aside.

Issue (ii): Appropriate consequential relief after setting aside the assessment order

Legal framework (as discussed by the Court): The Court addressed the practical consequence that setting aside the order would ordinarily require issuance of a fresh notice under Section 74A within limitation, and considered an alternative course to avoid repetitive proceedings while ensuring adjudication "in accordance with law" and with opportunity of hearing.

Interpretation and reasoning: The Court held that merely setting aside the assessment order would not be useful because the authority would in any event need to initiate proceedings under Section 74A afresh within limitation. To avoid relegating the parties to that exercise, the Court accepted the approach suggested by the respondent: the existing show cause notice (though issued under Section 74) could be treated as a notice under Section 74A, enabling the assessee to file a reply and enabling the authority to decide the matter on merits. The Court further mandated that the authority must afford "sufficient opportunity of personal hearing" before passing fresh orders.

Conclusion: The Court directed that the earlier show cause notice in Form GST DRC-01 be treated as one under Section 74A; the petitioner must file a reply within four weeks from receipt of the order; and thereafter the authority must pass fresh orders on merits in accordance with law after granting adequate personal hearing.

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