Section 161 of CSGT Act - Rejection Of Rectification Application
Without Hearing Is Illegal – Delhi High Court
Introduction
One of the foundational
pillars of the Indian legal system is the principle of natural justice,
which requires that no person should suffer adverse consequences without being
given a fair opportunity of hearing. In the context of taxation, where
authorities exercise significant power, the courts have consistently reiterated
the importance of this principle.
The Delhi High Court, in M/s
Mark Agencies vs. Department of Trade and Taxes & Anr. [W.P.(C) 9700/2025,
decided on 11 August 2025], dealt with a crucial question: Can a
rectification application under Section 161 of the CGST Act be rejected without
granting the taxpayer a personal hearing?
The Court’s ruling
reaffirms that even rectification proceedings, though limited in scope, are not
exempt from the requirements of natural justice when the decision adversely
affects the taxpayer.
Case
Details
- Case Title:
M/s Mark Agencies vs. Department of Trade and Taxes & Another
- Court:
High Court of Delhi at New Delhi
- Case No.:
W.P.(C) 9700/2025 & CM APPL. 40678/2025
- Date of Order:
11 August 2025
Summary of
the Case
The dispute arose when
M/s Mark Agencies received a Show Cause Notice (SCN) dated 21 May 2024
raising a tax demand of ₹2,31,85,509 on multiple grounds, including
under-declaration of output tax and excess Input Tax Credit (ITC). Despite
filing a reply, the demand was confirmed through an order dated 25 August
2024.
Aggrieved, the petitioner
filed a rectification application under Section 161 on 30 October
2024, pointing out errors in the order. However, without affording any
personal hearing, the Sales Tax Officer rejected the rectification request on 20
March 2025.
The petitioner approached
the Delhi High Court, contending that the rejection order violated the third
proviso to Section 161, which mandates observance of natural justice
principles whenever rectification is decided adversely. The Court agreed,
quashed the order, and remanded the matter back for fresh adjudication after
granting the petitioner a hearing.
Facts of
the Case
1. Show
Cause Notice & Allegations
o On
21 May 2024, a Show Cause Notice was issued to M/s Mark Agencies,
alleging:
§ Under-declaration
of output tax.
§ Excess
claim of ITC.
§ Ineligible
ITC under Section 16(4) of CGST Act.
§ ITC
availed from cancelled dealers, return defaulters, and tax non-payers.
o Total
demand proposed: ₹2,31,85,509.
2. Reply
& Adverse Order
o The
petitioner filed a reply, contesting the allegations.
o Nevertheless,
an order dated 25 August 2024 confirmed the demand in full.
3. Rectification
Application under Section 161
o On
30 October 2024, the petitioner filed an application seeking
rectification of errors apparent on the record.
o Section
161 permits rectification within six months, but requires a hearing if the
rectification adversely affects the assessee.
4. Rejection
Without Hearing
o The
Sales Tax Officer rejected the application on 20 March 2025, without
providing any opportunity of hearing.
5. Approach
to High Court
o The
petitioner filed a writ petition under Article 226, challenging both the 25
August 2024 demand order and the 20 March 2025 rejection of
rectification application.
Submissions
by the Petitioner
The petitioner’s counsel
advanced the following arguments:
- Violation of Natural Justice
- Section 161 expressly mandates that
if rectification is decided adversely, principles of natural justice must
be followed.
- Rejection of the rectification
application without hearing was illegal and unconstitutional.
- Errors in Demand Order
- The original demand order suffered
from errors apparent on the face of the record, which should have been
corrected.
- For example, ITC denial based on
suppliers’ defaults could not be attributed to the petitioner, who had
made genuine purchases.
- Precedents
- Relied upon Delhi High Court
judgment in HVR Solar Pvt. Ltd. v. Sales Tax Officer (2025), which
held that rectification cannot be rejected adversely without hearing.
- Also cited Madras High Court in
Suriya Cement Agency (2024), where the same principle was laid down.
- Relief Sought
- Quashing of the impugned
rectification rejection order dated 20 March 2025.
- Remand of rectification application
for fresh adjudication after hearing.
Defence by
the Respondents
The respondents opposed
the petition, submitting:
- Appealable Order
- The rejection of rectification
application was itself an appealable order under the CGST framework, and
hence the writ petition was not maintainable.
- Compliance with Procedure
- The department argued that
rectification was limited to clerical and arithmetical errors, and the
petitioner was effectively seeking a review of the demand order, which
Section 161 does not allow.
- No Prejudice
- The respondents contended that even
if no hearing was given, the petitioner had alternate remedies available
in law.
Observations
of the Court
The Delhi High Court,
after hearing both parties, made the following important observations:
1. Natural
Justice under Section 161
o The
third proviso to Section 161 clearly stipulates that if rectification
adversely affects any person, an opportunity of hearing must be given.
o Therefore,
the rejection of petitioner’s application without hearing was unsustainable.
2. Precedent
Binding
o The
Court cited its earlier judgment in HVR Solar Pvt. Ltd. (2025) and the
Madras High Court’s ruling in Suriya Cement Agency (2024), both of which
stressed the requirement of hearing.
3. Scope
of Rectification
o While
rectification cannot be expanded into a full-fledged review, errors apparent on
the face of record must be objectively examined.
o Denying
hearing prevents fair examination of such errors.
4. Right
of Appeal vs. Writ Jurisdiction
o Although
the respondents argued that the impugned order was appealable, the Court
clarified that writ jurisdiction can still be invoked where violation of
natural justice is evident.
Judgment of
the Court
- The Court set aside the impugned
order dated 20 March 2025 rejecting rectification.
- Directed the Adjudicating Authority
to hear the petitioner and pass a fresh order on the rectification
application.
- Ordered that hearing notice must be
served on the petitioner’s email and mobile number.
- Clarified that no opinion was being
expressed on the merits of the tax demand; only the violation of natural
justice was addressed.
Conclusion
The Delhi High Court’s
ruling in M/s Mark Agencies reiterates that procedural fairness is
non-negotiable in tax administration. Even in rectification proceedings,
which are generally confined to clerical errors, taxpayers cannot be deprived
of a hearing if the outcome is adverse to them.
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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