Fresh GST demand under Sections 73 and 161 treated as show-cause; earlier challenge infructuous, matter remitted

HC held that the challenge to the original order under s.73 of the GST enactments was infructuous as it had been superseded by a subsequent order dated 18.03.2025 under s.161, which raised a fresh demand of Rs. 3,85,35,356 on different grounds. HC noted that the Petitioner failed to respond to notices seeking documents and had an effective remedy against the rectified order and its rejection. Balancing interests, HC remitted the matter to the 2nd Respondent to pass a fresh order, treating the order dated 18.03.2025 as a show-cause notice. Petition dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a writ challenge to the order dated 24.08.2024 passed under Section 73 of the GST enactments is maintainable after it has been revised and substituted by the rectification order dated 18.03.2025 under Section 161.

1.2 Whether the rectification order dated 18.03.2025 passed under Section 161 of the GST enactments, confirming a fresh tax demand on a different ground, is vitiated for non-compliance with the third proviso to Section 161 and the principles of natural justice.

1.3 In light of the delay and the existence of an appellate remedy, whether the Court should exercise writ jurisdiction, and if so, on what terms, including conditions for remand, pre-deposit and lifting of bank attachment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of challenge to the order dated 24.08.2024 after rectification by order dated 18.03.2025

Interpretation and reasoning

2.1 The Court noted that the initial demand confirmed by the order dated 24.08.2024 under Section 73, pursuant to the Show Cause Notice in FORM DRC-01 dated 30.05.2024, was later rectified on an application dated 24.11.2024, resulting in the order dated 18.03.2025 under Section 161.

2.2 By the rectification order dated 18.03.2025, the entire demand confirmed by the order dated 24.08.2024 stood obliterated and was substituted by a fresh tax demand of Rs. 3,85,35,356/- on a different ground.

2.3 The Court held that, once the earlier order and demand stood revised and substituted, the effective order in force was the rectification order dated 18.03.2025. Any grievance against the demand should therefore have been directed against that order, and against the rejection order dated 31.03.2025 passed on the subsequent rectification application dated 24.03.2025.

Conclusions

2.4 The challenge to the order dated 24.08.2024 was held to be without merit, as that order had been superseded and had no operative demand surviving; the writ petition directed against it was dismissed.

Issue 2: Validity of the order dated 18.03.2025 under Section 161 and compliance with the third proviso and natural justice

Legal framework (as discussed)

2.5 The Court referred to Section 161 of the GST enactments and in particular to the third proviso, which mandates that where rectification adversely affects any person, the principles of natural justice shall be followed by the authority carrying out such rectification.

Interpretation and reasoning

2.6 The rectification order dated 18.03.2025, passed under Section 161, resulted in the confirmation of a fresh tax demand of Rs. 3,85,35,356/- on a different basis, thus adversely affecting the petitioner.

2.7 The record showed that, pursuant to the petitioner's rectification application dated 24.11.2024, the authority had issued two notices dated 05.12.2024 and 25.01.2025 calling upon the petitioner to furnish documents/information. The petitioner did not respond to these notices.

2.8 The Court held that this constituted only "part compliance" with the third proviso to Section 161. Merely calling upon the petitioner to furnish documents was not sufficient; before confirming a substantial tax demand on a new ground, the authority ought to have issued a proper notice and afforded a real opportunity consistent with the principles of natural justice.

2.9 At the same time, the Court noted that the petitioner had also been non-vigilant, both in not responding to the notices dated 05.12.2024 and 25.01.2025 and in not promptly availing statutory remedies or approaching the Court after the orders dated 18.03.2025 and 31.03.2025.

Conclusions

2.10 The Court found that the rectification proceedings culminating in the order dated 18.03.2025 suffered from inadequate compliance with the third proviso to Section 161 and the principles of natural justice, although the petitioner was also at fault for non-cooperation.

2.11 To balance the interests of both sides, the matter was remitted to the second respondent to pass a fresh order in lieu of the order dated 18.03.2025, insofar as it confirmed the tax demand of Rs. 3,85,35,356/-, after affording proper opportunity.

2.12 For the purposes of the remand, the order dated 18.03.2025 was directed to be treated as a Show Cause Notice.

Issue 3: Exercise of writ jurisdiction despite alternate remedy and delay; conditions for remand and interim protection

Interpretation and reasoning

2.13 The respondents objected to the maintainability of the writ petitions, contending that the petitioner had "slept over" its rights and failed to file an appeal under Section 107 within time, relying on decisions of the Supreme Court emphasising strict adherence to limitation and statutory remedies.

2.14 The Court acknowledged that the petitioner had not been diligent: it had not pursued an appeal, had approached the Court only on 03.11.2025, and had filed yet another rectification application dated 24.03.2025 (rejected on 31.03.2025) instead of availing the appellate remedy.

2.15 Nevertheless, in view of the partial non-compliance with the third proviso to Section 161 and the principles of natural justice in passing the order dated 18.03.2025, the Court considered it appropriate, in the overall facts and circumstances, to exercise writ jurisdiction in a limited manner by ordering a conditional remand.

2.16 To balance equities and account for the petitioner's delay and non-cooperation, the Court imposed a pre-condition for remand: the petitioner must deposit 10% of the disputed tax in cash from its Electronic Cash Register within thirty days from receipt of the Court's order.

2.17 Upon such deposit and after giving due notice to the petitioner, the second respondent was directed to pass a final order on merits and in accordance with law as expeditiously as possible, preferably within three months of the reply/pre-deposit.

2.18 It was further directed that, subject to the petitioner's compliance with the 10% pre-deposit and there being no other arrears except the amount demanded under the impugned order, the attachment of the petitioner's bank account shall automatically stand vacated; otherwise, the bank attachment shall continue.

2.19 In the event of failure to comply with the pre-deposit condition, the second respondent was given liberty to proceed to recover the tax in accordance with law as if the writ petition had been dismissed in limine, after giving due notice to the petitioner.

Conclusions

2.20 Writ jurisdiction was exercised in a restricted manner: the challenge to the original order dated 24.08.2024 was rejected, while the proceedings relating to the rectification order dated 18.03.2025 were remitted on conditions of pre-deposit and fresh consideration with observance of natural justice, with corresponding directions on bank attachment and recovery.

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