GST Authority Cannot Pass Fresh Ex-Parte Order After Ignoring Replies: Allahabad High Court

The Allahabad High Court has held that an adjudicating authority under the U.P. GST Act, 2017 must recall an order if it finds that it failed to consider the replies filed against the proceedings and hear the person afresh. It cannot consider those replies itself and pass a fresh ex-parte order on merits while exercising the rectification power under Section 161 of the Act.

A Division Bench of Justices Saumitra Dayal Singh and Swarupama Chaturvedi set aside an order passed against Wonder Enterprises after the Adjudicating Authority acknowledged that it had failed to consider the firm's replies in the original order but instead considered them itself in a subsequent order. The judges held:

“To allow the Adjudicating Authority to pass another ex-parte order creating tax demand, would amount to conceding to the Adjudicating Authority a power to review its order, on merits or to pass an order prejudicial to the assessee, without issuing notice under section 161 of the Act.”

Section 161 permits an authority to rectify an error apparent on the face of the record in its own order, either on its own motion or when the error is brought to its notice. Its third proviso requires the principles of natural justice to be followed where the rectification adversely affects any person.

A show cause notice under Section 74 was issued to Wonder Enterprises on 17 June 2021. The firm filed replies on 13 July 2021 and 18 July 2021. However, the Adjudicating Officer passed an ex-parte order on 30 January 2025 without considering either reply.

On 5 February 2025, the authority passed a further order under Section 161 without issuing notice to Wonder Enterprises. It recorded that the earlier order had failed to consider the two replies and then considered them itself, reducing part of the demand.

The Court did not find fault with the authority invoking its rectification power. It noted that the authority exercised the power on its own motion within a week of the first order and treated the omission to consider the replies as an error falling within Section 161.

Referring to Grindlays Bank Ltd. v. Central Government Industrial Tribunal, where the Supreme Court recognised the inherent power of a court or tribunal to undo an order passed under a misapprehension or to correct an oversight, the High Court held that the 30 January 2025 order could be recalled because the denial of an opportunity of hearing and failure to give reasons went to the root of the proceedings. It observed:

“denial of opportunity of hearing and not assigning reasons in the Adjudication Order vitiate/taint the proceedings, beyond cure.”

However, the Bench held that the authority could not use the rectification exercise to review the earlier order on merits. Since the omission to consider the replies went to the root of the proceedings, the authority had to recall the 30 January 2025 order and provide Wonder Enterprises an opportunity of personal hearing before passing a fresh order.

The State argued that the second order was not prejudicial to Wonder Enterprises since it reduced part of the demand. The judges rejected the argument, holding that the order nevertheless created and sustained a demand contrary to the replies on record.

The Bench clarified that the third proviso to Section 161 may not apply where the authority merely identifies a computational error and reduces the demand on its own motion. It held:

“However, where a denovo order has been passed occasioned by recall of earlier order that was admittedly passed on a complete non-consideration of the reply furnished by the assessee, the principle contained in the third proviso to section 161, will not apply.”

Accordingly, the High Court set aside the order dated 5 February 2025 and remitted the matter to the Adjudicating Authority to pass a fresh order after giving Wonder Enterprises an opportunity of hearing and allowed the writ petition.