HC: Rejection of Section 161 Rectification Application Requires a Personal Hearing.

Issue

Whether a GST authority can reject a rectification application filed by a taxpayer under Section 161, on the grounds that there is “no error apparent on the face of the record,” without first granting the taxpayer a personal hearing.

Facts

Following a demand order for the 2020-2021 period, the petitioner filed a rectification application under Section 161 of the CGST Act.
The tax authority rejected this application on the merits, stating that there was “no error apparent on the face of the record” to rectify.
This rejection order was passed without granting the petitioner a personal hearing.
The petitioner filed a writ petition, arguing that this failure to provide a hearing was a breach of the principles of natural justice.

Decision

The High Court set aside (quashed) the impugned order that had rejected the rectification application.
It held that the decision on whether an “error apparent” exists is a quasi-judicial one that requires the application of mind.
The court ruled that rejecting a taxpayer-initiated rectification application without providing a personal hearing is a fundamental breach of the principles of natural justice.
The matter was remanded back to the adjudicating authority with a direction to pass a fresh, reasoned order after considering the petitioner’s reply and affording them a proper personal hearing.

Key Takeaways

Hearing is Mandatory for Rectification: A taxpayer has a right to be heard before their rectification application is rejected on its merits.
Natural Justice Applies to All Proceedings: The principles of natural justice (audi alteram partem – hear the other side) apply not only to original demand proceedings but also to subsequent proceedings like rectification.
Non-Speaking Orders are Invalid: The court noted that the rejection order was a “bare reproduction” of the law with a simple conclusion. This lack of reasoning (“non-speaking order”) is itself a violation of natural justice.
Distinction from Suo Motu Action: The court clarified that the legal requirement for a hearing is not limited to cases where the department suo motu rectifies an order to the taxpayer’s disadvantage. It also applies when the department is rejecting an application filed by the taxpayer.

HIGH COURT OF MADRAS

Aries Interior

State Tax Officer^*

C.Saravanan, J.

W.P. No. 35446 of 2025
W.M.P. Nos.39667 and 39672 of 2025

SEPTEMBER 17, 2025

E. Abdul Wajith for the Petitioner. T.N.C.Kaushik, Addl. Govt. Pleader for the Respondent.

ORDER

1. 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 today.

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 1^st Respondent in the de novo proceedings.

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.