Madras HC Quashes GST Rectification Rejection for Denial of Hearing; Matter Remanded with 25% Deposit

Aries Interior Vs State Tax Officer (Madras High Court)

The petitioner challenged an order dated 26.05.2025 issued by the first respondent under Section 161 of the GST enactments. The impugned order rejected the petitioner’s rectification application dated 24.03.2025 in respect of a demand order dated 21.01.2025 for the tax period 2020–2021. The rejection was on the ground that there was no error apparent on the face of the record. The court found that the impugned order merely reproduced the statutory provision and concluded that no rectifiable error existed, without providing an opportunity of personal hearing.

The judgment refers to the third proviso to Section 161, noting that natural justice must be followed where rectification adversely affects a person. Although the proviso primarily applies to suo motu rectifications involving enhancement, the court held that this does not mean a party filing a rectification application need not be heard. Whether an error exists must be determined after affording a personal hearing.

Considering its consistent view in comparable matters, the court decided to set aside the impugned order, subject to certain conditions. The petitioner is required to deposit 25% of the disputed tax in cash from its electronic cash register within thirty days of receipt of the order. Upon compliance, the petitioner must file a consolidated reply to the Show Cause Notice (GST DRC-01 dated 04.11.2024), treating the impugned order as an addendum to that notice, along with supporting documents within the same period.

If the petitioner satisfies the conditions, the first respondent is directed to pass a fresh order de novo on the rectification application relating to the demand order dated 21.01.2025, on merits and in accordance with law, preferably within two months thereafter. Subject to compliance, the attachment of the petitioner’s bank account with the third respondent will also stand lifted. Failure to meet any condition will entitle the first respondent to proceed with recovery as if the writ petition had been dismissed at the admission stage. Prior notice must be provided before passing any such order. The petitioner is also directed to co-operate in the proceedings, and the de novo assessment must be made independently, without being influenced by earlier observations preceding the Show Cause Notice dated 04.11.2024. The writ petition was disposed of without costs.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

Mr. T.N.C. Kaushik, learned Additional Government Pleader takes notice for the Respondents 1 and 2.

2. This Writ Petition is being disposed of at the time of admission with the consent of the learned counsel for the Petitioner and the learned Additional Government Pleader for the Respondents 1 and 2.

3. In this Writ Petition, the Petitioner has challenged the impugned Order dated 26.05.2025 of the 1^st Respondent, passed under Section 161 of the respective GST enactments.

4. By the impugned Order dated 26.05.2025, the application dated 24.03.2025 filed for rectification of the Demand Order dated 21.01.2025 vide Acknowledgment for the Rectification Application dated 26.03.2025 has been rejected on the ground that there is no error apparent on the face of record.

5. The impugned Order dated 26.05.2025, has merely reproduced the provision and has come to a conclusion that there is no error apparent on the face of record to rectify the defects if any in the Demand Order dated 21.01.2025 passed for the Tax Period 2020-2021.

6. Although the 3^rd Proviso to Section 161 of the respective GST enactments states that where any rectification is adversely affects any person, the principles of natural justice has to be followed by the Authority carrying out such rectification. The said Proviso reads as under:-

“Provided also that where such rectification adversely affects any person, the principles of natural justice shall be followed by the authority carrying out such rectification.”

7. However, the 3^rd Proviso will apply to the situation where there is a suo motu attempt to rectify the order and where enhancement is proposed. However, that would not mean that an application filed under Section 161 of the respective GST enactments, the party should not be heard who had filed an application for Rectification of Order. Whether indeed the case is made out or not as to whether there is any error apparent on the face of record has to be also preceded by a personal hearing.

8. Under these circumstances and having considered the consistent view taken by this Court in similar circumstances, this Court is inclined to come to the rescue of the Petitioner by quashing the impugned Order dated 26.05.2025 of the 1^st Respondent on terms subject to the Petitioner depositing 25% of the disputed tax in cash from the Petitioner’s Electronic Cash Register within a period of thirty (30) days from the date of receipt of a copy of this order.

9. The Petitioner shall file a consolidated reply to the Show Cause Notice in GST DRC-01 dated 04.11.2024 together with requisite documents to substantiate the case by treating the impugned Order dated 26.05.2025 as an addendum to the Show Cause Notice dated 04.11.2024 within a period of thirty (30) days from the date of receipt of a copy of this order.

10. In case the Petitioner complies with the above stipulated conditions, the 1^st Respondent shall proceed to pass a fresh order de novo in the application filed for rectification of the Demand Order dated 21.01.2025 on merits and in accordance with law as expeditiously as possible, preferably, within a period of two (2) months thereafter. Subject to the Petitioner complying with the above stipulated conditions, the attachment of the bank account of the Petitioner with the 3^rd Respondent shall also stands raised.

11. In case the Petitioner fails to comply with any of the conditions stipulated above, the 1^st Respondent is at liberty to proceed against the Petitioner to recover the tax in accordance with law as if this Writ Petition was dismissed in limine.

12. Needless to state, before passing any such order, the 1^st Respondent shall give due notice to the Petitioner.

13. It is made clear that the Petitioner shall co-operate with the 1st

14. Fresh assessment in the de novo proceedings shall be made without getting influenced by any of the observations, which preceded the Show Cause Notice in GST DRC-01 dated 04.11.2024.

15. This Writ Petition stands disposed of with the above observations. No costs. Connected Writ Miscellaneous Petitions are closed.