2024 (11) TMI 1552 - HC - GST

Rectification Order Under Section 161 Third Proviso Set Aside for Denial of Hearing and Natural Justice

HC held that under the third proviso to Section 161 of the Act, principles of natural justice require that an assessee be afforded a hearing if a ... Principles of natural justice - Service of SCN or not - whether any hearing was afforded in the rectification application or not? - HELD THAT:- Insofar as the hearing for rectification application under Section 161 of the Act is concerned, in terms of the third proviso to Section 161 of the Act, if the rectification order is to be passed adverse to the Petitioner, a hearing ought to be afforded. This Court in HVR Solar Private Limited vs. Sales Tax Officer Class II Avato Ward 67 & Anr., [2025 (4) TMI 730 - DELHI HIGH COURT], has considered the third proviso to Section 161 of the Act while relying on the decision of the Madras High Court in Suriya Cement Agency v. State Tax Officer [2024 (12) TMI 57 - MADRAS HIGH COURT] where it was held that 'The principles of natural justice had been inbuilt by way of the 3rd Proviso to Section 161. If pursuant to a Rectification Application, if a rectification is made and if it adversely affects the assessee, Proviso 3 contemplates an opportunity of hearing to be given. However, when an Rectification Application is made at the instance of assessee and the rectification is being sought to be rejected without considering the reasons for rectification or by giving reasons as to why such rectification could not be entertained. It is also imperative that the assessee to be put on notice.' The above legal position is to the effect that it is necessary to afford a hearing to the assessee when the rectification order adversely affects the said assessee. Under these circumstances, the Rectification order dated 27th June, 2025 is set aside - Let the Petitioner be permitted to file short submissions highlighting the previous demands that have already been dropped - petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether service of the show cause notice through upload on the 'Additional Notices' tab of the GST Portal, after the portal modification on 16 January 2024, was legally valid. 1.2 Whether rejection of a rectification application under Section 161 of the Central Goods and Services Tax Act, 2017, without affording a personal hearing, is contrary to the third proviso to Section 161 and the principles of natural justice when the rectification order adversely affects the assessee. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of service of show cause notice through 'Additional Notices' tab Legal framework 2.1 The judgment records that from 16 January 2024 the GST Department modified the GST Portal to make the 'Additional Notices' tab fully visible to taxpayers. Interpretation and reasoning 2.2 The assessee contended that the show cause notice was not served, as it was only uploaded in the 'Additional Notices' tab, and therefore the consequential order was vitiated. 2.3 The Tribunal noted the specific factual position that, after 16 January 2024, the 'Additional Notices' tab was made fully visible to taxpayers on the GST Portal. 2.4 In view of this portal modification and visibility, the Tribunal held that the ground of non-service of the show cause notice merely on account of its placement in the 'Additional Notices' tab was not tenable. Conclusions 2.5 Service of the show cause notice by uploading it on the 'Additional Notices' tab of the GST Portal, after the said tab was made fully visible on 16 January 2024, was held to be valid, and the challenge to the impugned order on this ground was rejected. Issue 2 - Requirement of personal hearing in rectification proceedings under Section 161 when order is adverse Legal framework 2.6 The Tribunal examined Section 161 of the Central Goods and Services Tax Act, 2017, including the third proviso, which stipulates that where rectification adversely affects any person, the principles of natural justice shall be followed by the authority carrying out such rectification. 2.7 The Tribunal relied on its earlier decision in HVR Solar Private Limited and on the judgment of the Madras High Court in Suriya Cement Agency v. State Tax Officer, which interpreted the third proviso to Section 161, holding that an assessee is entitled to an opportunity of hearing where a rectification order is adverse. Interpretation and reasoning 2.8 It was an admitted position that, in the present case, no hearing was granted in the rectification application filed under Section 161, and the rectification application was rejected. 2.9 Referring to the third proviso to Section 161, the Tribunal held that when an order on rectification is adverse to the assessee, the authority is bound to follow the principles of natural justice, which includes affording an opportunity of being heard. 2.10 By adopting the reasoning in Suriya Cement Agency, the Tribunal noted that: (i) where a rectification application is made by the assessee and is proposed to be rejected, the assessee must be put on notice; (ii) the authority must provide reasons as to why rectification is not being entertained; and (iii) the absence of a hearing and reasons vitiates the rectification order. 2.11 The Tribunal reaffirmed that this legal position has also been followed in Raman Enterprises v. Commissioner of SGST Delhi and Anr., thereby underscoring that a hearing is mandatory where the rectification order adversely affects the assessee. Conclusions 2.12 The rejection of the rectification application dated 11 February 2025, by order dated 27 June 2025, without granting a personal hearing, was held to be in violation of the third proviso to Section 161 and the principles of natural justice. 2.13 The rectification order dated 27 June 2025 was set aside. 2.14 The assessee was permitted to file short submissions highlighting previous demands that had already been dropped, and the authority was directed to afford a personal hearing in the rectification proceedings, with notice of hearing to be served at the specified e-mail address and mobile number. 2.15 Until a fresh decision is taken on the rectification application, no coercive measures are to be taken against the assessee under the impugned demand order.