Increase In GST Liability Without Prior Notice Was Contrary To
Law -Madurai Bench Quashes GST Demand Hike Without Notice
Brief
Summary:
In A.A.A. Traders vs.
Deputy State Tax Officer-1 (W.P.(MD) No. 21356 of 2025), the Madurai Bench
of the Madras High Court set aside a portion of a rectification order that
increased IGST liability without prior notice to the taxpayer. The Court held
that any such enhancement requires adherence to principles of natural justice.
The matter was remitted for reconsideration, while protecting the petitioner
from recovery proceedings during the process.
Case Title
and Details:
- Case Name:
A.A.A. Traders vs. Deputy State Tax Officer-1
- Writ Petition No.:
W.P.(MD) No. 21356 of 2025 & W.M.P.(MD) Nos.16484 & 16485 of 2025
- Date of Order:
07.08.2025
- Court:
Madurai Bench of Madras High Court
- Presiding Judge:
Hon’ble Mr. Justice C. Saravanan
Background
and Facts:
- Initial Assessment:
On 05.09.2024, the respondent issued an assessment order under Section
73 of the GST Act for FY 2022–23, confirming a tax demand of ₹23,77,202,
including tax, interest, and penalty.
This followed a DRC-01 notice dated 08.05.2024, to which the petitioner
failed to respond.
- Rectification Request:
The petitioner filed an application under Section 161 of the GST Act
on 03.03.2025 seeking rectification.
On 12.03.2025, the department substantially reduced the demand but
unexpectedly increased the IGST liability from ₹1,87,866 to
₹2,25,969 — without issuing a fresh notice.
Submissions
Before the Court:
Petitioner’s Argument:
- The enhancement of IGST was without
notice, violating natural justice.
- The increase could not be sustained
as no opportunity was given to respond.
Respondent’s Stand:
- Defended the assessment and
rectification but accepted that the IGST component could be reconsidered.
Findings of
the Court:
- The increase in IGST without prior
notice was contrary to law and the principles of natural justice.
- The Court limited its interference only
to the increased IGST portion.
- The matter was remitted back
to the department for fresh consideration on that aspect.
Final
Judgment & Directions:
1. Remand:
The issue of increased IGST liability (from ₹1,87,866 to ₹2,25,969) is remitted
to the respondent for fresh consideration.
2. Timeline:
The reconsideration must be completed within two months of receiving the
Court’s order.
3. Petitioner’s
Rights: The petitioner may challenge any fresh order if IGST
is re-confirmed.
4. Deposit
Requirement: If the petitioner intends to appeal CGST
& SGST liability, 10% of those dues must be deposited; if admitted,
they must be paid immediately.
5. Recovery
Protection: Recovery proceedings will be kept in abeyance during
the appeal process.
The writ petition was disposed
of with no costs.
Key Legal
Takeaways:
- Any increase in tax liability
during rectification or reassessment must follow natural justice
principles, including issuing notice and granting a hearing.
- Section 161 GST Act
allows rectification of errors, but it cannot be used to impose additional
liability without due process.
- Courts will interfere selectively,
focusing only on the illegal portion of an order.
Conclusion:
The A.A.A. Traders
ruling reinforces that while tax authorities have powers to rectify mistakes, procedural
fairness is non-negotiable. Taxpayers must be given an opportunity to
present their case before any liability is increased, even in rectification
proceedings.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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