Demand Order quashed for ignoring reply & DRC-03 payment; Non-consideration held as "Mistake Apparent"

Demand Order quashed for ignoring reply & DRC-03 payment; Non-consideration held as “Mistake Apparent”

Issue

Natural Justice: Is an adjudication order valid if the authority confirms a demand (alleging fake invoices) without considering the taxpayer’s written reply and evidence of voluntary payment (DRC-03)?
Rectification (Section 161): Does the failure to consider a reply already on record constitute a “mistake apparent from the record” warranting rectification, or is the order final?

Facts

The Allegation: The petitioner was issued a Show Cause Notice (SCN) alleging wrongful availment of ITC on transactions with a non-existent supplier (Section 74 – Fraud/Suppression).
Petitioner’s Defense:
- Filed a written reply denying the allegations.
- Voluntary Payment: Asserted that the disputed ITC had already been deposited via Form DRC-03.
- Personal Hearing: The authorized representative appeared and reiterated these submissions.
The Adjudication Order (20.01.2025): The Authority passed an order confirming tax, interest, and penalty. However, the order was silent on the petitioner’s reply and the effect of the voluntary deposit.
Rectification Attempt: The petitioner filed an application for rectification of mistake, pointing out that their defense was ignored.
Rectification Rejection (22.09.2025): The Authority rejected this application, stating the order had attained finality and there was “no error apparent on the face of the record.”

Decision

Breach of Natural Justice: The High Court held that a quasi-judicial authority has a duty to objectively consider the taxpayer’s defense. Confirming a demand without discussing the specific points raised in the reply (and the DRC-03 payment) is a gross violation of natural justice.
Mistake Apparent from Record: The Court ruled that non-consideration of a reply that is available on record is not just a procedural lapse but a “mistake apparent from the face of the record” under Section 161.
- The Authority’s refusal to rectify this error was legally unsustainable.
Ruling:
- The rectification rejection order (dated 22.09.2025) was quashed.
- The original adjudication order (dated 20.01.2025) was set aside.
- The matter was remitted (remanded) for a fresh decision, with a strict direction to provide a hearing and pass a “speaking order” that considers the reply and the DRC-03 payment.

Key Takeaways

Right to a Reasoned Order: A “speaking order” (one that gives reasons) is the heart of adjudication. If an officer receives your reply but copies-pastes a standard template ignoring your specific arguments, that order is liable to be quashed in a Writ Petition.

Scope of Rectification: Taxpayers often think Section 161 is only for arithmetic errors. This judgment clarifies that omitting to consider a document on record (like a reply or payment proof) is a valid ground for rectification.

DRC-03 Value: Voluntary payment via DRC-03, especially before the SCN or adjudication, is a significant mitigating factor. If paid, it must be accounted for in the final liability calculation.

HIGH COURT OF ALLAHABAD

Kirti Agarwal

Union of India^*

Saumitra Dayal Singh and INDRAJEET SHUKLA, JJ.

WRIT TAX No. 6538 of 2025

NOVEMBER 20, 2025

Akashi Agrawal, Sr. Adv. for the Petitioner. Dhananjay Awasthi for the Respondent.

ORDER

1. Heard Shri Rahul Agrawal, learned Senior Advocate assisted by Ms. Akashi Agrawal, learned counsel for the petitioner, Shri Dhananjay Awasthi, learned counsel for the Revenue and perused the record.

2. The present petition has been filed seeking following relief:

“(i) Issue a writ, order or direction in the nature of Certiorari quashing the order dated 20.01.2025 passed under Section 74 of the Goods and Services Tax Act by the adjudicating authority (Annexure-2 to the writ petition);

(ii) Issue a writ, order or direction in the nature of Certiorari quashing the impugned order dated 22.09.2025 passed on the application for rectification under Section 161 of the Goods and Services Tax Act by the adjudicating authority as uploaded on the GST portal of the petitioner on 30.09.2025 (Annexure-1 to the writ petition);”

3. Short ground pressed in the petition is-in response to the show cause notice, petitioner had stated in his reply as below:

(12) M/s Kartikeya Industries, Kanpur submitted that- प्रार्थी को जैसे ही उपरोक्त फर्म S.K. UDYOG से संबन्धित खरीद की IIC की जानकारी प्राप्त हुई प्रार्थी ने DRC-03 के माध्यम से जमा कर दिया है।”

4. During the course of hearing, the petitioner’s representative submitted as below:

“06. M/s Kartikeya Industries, Kanpur- Shri Ajendra Dubey, Advocate and authorized representative of the Noticee attended personal hearing on 22.11.2024 and reiterated their written submissions dated 22.11.2024.”

5. The above quotations have been extracted from the impugned adjudication order itself. In such facts, the Adjudicating Authority has offered following consideration on the stand taken by the petitioner:

“37.3 I find that the investigation into M/s Kartikeya Industries (09AUMPA4377N1Z1) revealed fraudulent activities involving transactions with M/s S.K. Udyog, a non-existent paper firm of Shri Manoj Jain and Shri C.P. Tayal. Despite summonses being issued, M/s Kartikeya Industries failed to respond. Evidence showed that no goods were received or supplied against the invoices issued by or to M/s S.K. Udyog, and no proof of receipt of goods was provided. Consequently, M/s Kartikeya Industries fraudulently availed inadmissible Input Tax Credit (ITC) amounting to Rs. 19,89,480/-, recoverable under Section 74 of the CGST Act, 2017, and the UP GST Act, 2017. Further, they issued fake invoices with a taxable value of Rs.7,25,280/- without any underlying supply of goods or services to M/s S.K. Udyog.”

6. Thus, the Adjudicating Authority failed to take note of the case or the explanation furnished by the petitioner that it had realized the mistake and rectified its conduct by paying up the disputed ITC amount. That stand has not been considered and its impact has not been examined, while confirming the demand of tax and imposing penalty on the petitioner.

7. Not only this arising from the above mistake committed by the Adjudicating Authority, the petitioner has filed rectification application dated 22.04.2025. That too has been rejected by the order dated 22.09.2025, wherein it has been recorded as below:

“3. DISCUSSION & FINDINGS:

3.1 I have gone through the records of the case as well as contents of the rectification application dated 22/04/2025 filed by the party with material and evidences relied upon for its proposition and facts available in the file.

3.2 In the instant case, the party has filed an application for rectification of the Order-in-Original dated 20/01/2025 under the provisions of Section 161 of the CGST Act, 2017.

3.3 Therefore, I examined the Section 161 of the GST Act.

SECTION 161. Rectification of mistake.-

Without prejudice to the provisions of section 160, and notwithstanding anything contained in any other provisions of this Act, any authority, who has passed or issued any decision or order or notice or certificate or any other document, may rectify any error which is apparent on the face of record in such decision or order or notice or certificate or any other document, either on its own motion or where such error is brought to its notice by any officer appointed under this Act or an officer appointed under the State Goods and Services Tax Act or an officer appointed under the Union Territory Goods and Services Tax Act or by the affected person within a period of three months from the date of issue of such decision or order or notice or certificate or any other document, as the case may be:

Provided that no such rectification shall be done after a period of six months from the date of issue of such decision or order or notice or certificate or any other document:

Provided further that the said period of six months shall not apply in such cases where the rectification is purely in the nature of correction of a clerical or arithmetical error, arising from any accidental slip or omission:

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.

3.4 In this case, I have carefully gone through the relevant Show Cause Notice No. 22/2022-23 Dated 29.07.2022 and also, gone through the relevant para 37.3 of the Discussion and Findings of the impugned Order in Original. I find that the demand was raised against the noticee in the Show Cause Notice No. 22/2022-23 Dated 29.07.2022 but, nothing has been discussed about appropriation of the amount deposited by the applicant. Thus, I observe that the question before the adjudicating authority was limited to determination of demand, interest thereon and various penalties. Accordingly, the same was not appropriated in the impugned Order in Original, as claimed by the applicant.

Furthermore, once the Order-in-Original dated 20.01.2025 was passed, it attained finality subject to statutory remedies available under law. As per the provisions of Section 161 of the CGST Act, rectification is permissible only in respect of errors apparent on the face of the record. Since the impugned order was passed after due consideration of all the submissions and replies made by the party during the adjudication proceedings, there appears no error on the face of record. If any deposit was made by the party, the same may be accounted for against the tax liability after due verification by the jurisdictional tax authority.

04. Accordingly, I pass the following order:”

8. The above facts are writ large on the face of record. In view of the blatant twin errors committed by the Adjudicating Authority-in not considering the reply furnished by the petitioner or the stand pressed by the petitioner at the stage of oral hearing and in failing to rectify its mistake when pointed out, we find no useful purpose would be served in keeping this present petition pending or passing any further order.

9. The Adjudicating Authorities are quasi-judicial authorities dealing with imposition of tax and levies of tax, penalties etc. Once a particular stand is taken by the noticee/assessee which is material to the proposed confirmation of demand and raises material issues that may be necessarily considered before any demand is confirmed or penalty imposed, minimum requirement of law remains that the adjudicating authority would necessarily deal with it fairly and squarely by offering objective consideration and assigning specific reasons, especially since such authority proposes to reject the explanation and thus visit the noticee with adverse civil consequential.

10. Not only the Adjudicating Authority made a mistake in not considering the case of the petitioner (after specifically making a note of it in the adjudication order itself), what is alarming is it has failed to offer any consideration even upon that mistake being pointed out. Nonconsideration of the case raised and pressed before the Adjudicating Authority necessarily involves element of mistake apparent from record.

11. Such error would remain included within the scope of the power under Section 161 of the CGST Act 2017 that includes power to rectify error apparent from the face of record. To the extent, the Adjudicating Authority had failed to consider the reply of the petitioner (as noted by him) and had failed to assign any reason, therefore, it remained an error apparent on the fact of record.

12. Accordingly, the order dated 22.9.2025 rejecting the rectification application is quashed. Also, the Adjudication Order dated 20.01.2025 is set aside, qua the petitioner, only.

13. The matter is remitted to the Adjudicating Authority to pass a fresh order with respect to the petitioner, after giving fresh opportunity of hearing with at least 15 days clear notice. The petitioner undertakes to cooperate in the proceedings and not seek any undue or long adjournment. It is expected that the proceedings in remand be concluded on or before 31st March, 2026.

14. With the above observations, this petition is disposed off.