Order passed under Sec.73 without penalty and later rectificed u/s.161

[Raam Srinivasan Swaminathan Kalpathi]

Brief facts are:

Client was issued ASMT-10 on 02-Mar-26 and reply was filed on 15-Apr-26 . Not satisfied Tamil Nadu GST department issued DRC-01 producing the ASMT-10 discrepancies verbatim on 05-May-26 again and the same reply was uploaded on 23-May-26.

Just before date of personal hearing on 16-Aug-26 we noticed certain short-payment and remitted the same and GST department passed orders dropping all discrepancies.

On 14-Sep-26 department issued Sec.161 Order imposing penalty u/s.73 of CGST Rs.10,000/-, SGST-10,000/- and IGST-20,000/-.

This is clearly an after thought and not on account of a mistake apparent on record. My query do we have a arguable case here? I request experts to give me their opinion and suggestions on the strategy to be adopted by the client. Profuse thanks

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Section 161 can only be invoked to correct "errors apparent on the face of the record". Opening the case intending to impose a penalty cannot be called rectification. Penalty can only be levied under the relevant provisions of Sec. 73 or 74 or 74A by issuing a Show Cause Notice. Without issuing an SCN, imposing a Penalty is nothing but a misapplication of power. Since the original order formally dropped all discrepancies, the tax authority cannot alter the core conclusion of that order under the guise of "rectification".

AI Summary

Rectification of assessment orders raises whether penalties can be imposed after discrepancies were dropped following payment of short-paid tax.
Rectification under section 161 is questioned where an order under section 73 had dropped all discrepancies after the taxpayer remitted identified short-payment before the personal hearing. A later order under section 161 imposed separate CGST, SGST and IGST penalties. The central contention is that the later penalty imposition is an afterthought rather than correction of a mistake apparent on the record.