Mere dismissal of rectification application without modifying original order does not warrant personal hearing

The Hon’ble Madras High Court in M/s. Eminent Textiles Mills Private Limited, Rep. by its Director, R. Balaguru Versus The State Tax Officer, The Assistant Commissioner (ST) -2, The Deputy Commissioner (Appeals), Tirunelveli - 2025 (7) TMI 992 - MADRAS HIGH COURT held that dismissal of a rectification application under Section 161 of the TNGST Act does not attract the requirement of natural justice under the third proviso, as refusal to rectify is not “rectification” within the meaning of the statute.

Facts:

Eminent Textiles Mills Private Limited (“the Appellant”) is a registered taxpayer engaged in the manufacture of cotton textiles. Pursuant to a GST audit under Section 65 of the Tamil Nadu Goods and Service Tax Act, 2017 (“the TNGST Act”) for FY 2019–20, discrepancies were found, and a show cause notice was issued. Despite being granted a personal hearing, the Appellant did not appear. An assessment order dated August 30, 2024, was passed under Sections 9(3), 16(1), 16(2), 39, and 50 of the TNGST Act, determining tax, interest and penalty of ₹5.96 crore.

The Appellant thereafter filed a rectification application dated November 29, 2024, under Section 161, which was rejected on January 21, 2025.

The present writ appeal challenges the rejection of the rectification application on the ground that no opportunity of hearing was granted, violating principles of natural justice.

Issue:

Whether the rejection of a rectification application filed under Section 161 of the TNGST Act requires the Assessing Authority to provide an opportunity of personal hearing with regard to the third proviso to that Section?

Held:

The Hon’ble Madras High Court in M/s. Eminent Textiles Mills Private Limited, Rep. by its Director, R. Balaguru Versus The State Tax Officer, The Assistant Commissioner (ST) -2, The Deputy Commissioner (Appeals), Tirunelveli - 2025 (7) TMI 992 - MADRAS HIGH COURT held as under:

• Observed that, the third proviso to Section 161 of the TNGST Act mandates observance of the principles of natural justice only where an actual ‘rectification’ is carried out, and such rectification adversely affects the assessee.
• Noted that, the term “rectification” under the statute implies a positive act of correction or alteration; hence, a mere ‘refusal to rectify’ is not within the scope of “such rectification”.
• Held that, rejection of a rectification application does not attract the third proviso to Section 161, as the condition precedent, i.e an actual rectification was not met.
• Noted that, where the statute expressly delineates situations warranting natural justice, courts should refrain from expanding its application by implication.
• Further confirmed the order of the learned Single Judge and reiterated that the Appellant’s proper remedy lies in appeal and directed that if the Appellant files such appeal within two weeks from the date of this order, it shall be entertained without reference to limitation, subject to other statutory compliances.

Our Comments:

This judgment adopts a narrow and textual interpretation of Section 161, particularly the third proviso, concluding that principles of natural justice apply only where a rectification is actually made and is adverse in nature. This approach as in Pinstar Automotive India Pvt. Ltd. Versus Additional Commissioner, Office of the Commissioner of GST and Central Excise Chennai - 2023 (3) TMI 1168 - MADRAS HIGH COURT, the Madras High Court held that the rectification order, if allowed in favour of the petitioner seeking rectification, hearing can be dispensed with. However, if the rectification application is to be decided adversely affecting the right of the applicant, the principles of natural justice have to be followed and a hearing ought to be given, if sought. Similarly, in M/s. Suriya Cement Agency, Represented by its Proprietor Salai Sivakumar Vidya Versus The State Tax Officer (ST), The State of Tamil Nadu, Chennai, Union of India - 2024 (12) TMI 57 - MADRAS HIGH COURT, the Court set aside an order rejecting rectification for lacking reasons and not affording a hearing, reiterating that proviso 3 to section 161 of the CGST Act provides that it is mandatory to grant an opportunity of being heard if rectification order is detrimental to the interest of assessee.

In the case of HVR Solar Private Limited Versus Sales Tax Officer Class II Avato Ward 67 & Anr. - 2025 (4) TMI 730 - DELHI HIGH COURTthe Delhi High court, has held that as per proviso 3 to Section 161 of the Delhi Goods and Service Tax Act, 2017, an order rejecting the rectification application submitted via the taxpayer cannot be passed without first hearing the taxpayer.

Relevant Provisions:

Section 161 – TNGST Act, 2017

161. Rectification of errors apparent on the face of record -

“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.”

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