The Orissa High Court held Section 161 allows only apparent error correction, mandating reasoned scrutiny of records and materials. A Division Bench of Harish Tandon and Murahari Sri Raman faulted authorities for ignoring ITC reconciliations, quashing the rejection infirm.
CUTTACK: The High Court of Orissa clarified that Section 161 of the CGST Act permits correction only of errors that are evident on the face of the record and requires authorities to examine available materials with proper reasoning.
The division Bench of Chief Justice Harish Tandon and Justice Murahari Sri Raman noted that the petitioner had submitted detailed replies and an ITC reconciliation statement, which should have been verified before rejecting the rectification request. Since the authority failed to review portal data or grant a hearing, the rejection order was found legally flawed and was therefore quashed.
In this case, the petitioner was subjected to audit proceedings over alleged non-reversal and excess ITC linked to suppliers’ credit notes and discrepancies with Form GSTR-2A. The petitioner maintained that the ITC matched GSTR-2A and that necessary reversals were adjusted in Form GSTR-9, supported by reconciliation statements, purchase records, and ledger entries.
Despite this, the adjudicating authority raised a demand citing missing original credit notes. Although the petitioner sought rectification based on portal data and reconciliations showing no excess ITC, the application was rejected without proper reasoning, verification, or an opportunity of hearing, leading to intervention by the High Court.
Fact of the Case
The petitioner challenged the order dated September 1, 2025, issued under Section 161 of the Central Goods and Services Tax Act, 2017, and the Odisha Goods and Services Tax Act, 2017, by the Assistant Commissioner of CT & GST, Bhubaneswar-1 Circle. This order pertained to tax periods related to the Financial Year 2020-21 and rejected the application for rectification without considering the reconciliation summary provided by the petitioner.
Following an audit conducted under Section 65 of the GST Act for the tax periods in question, a proceeding under Section 73 was initiated. The proceedings were based on allegations that the petitioner failed to reverse the Input Tax Credit (ITC) associated with credit notes. Specifically, it was claimed that the petitioner had excessively claimed ITC in the GSTR-3B in comparison to the ITC available in GSTR-2A.
The Section 73 proceedings led to an order on February 27, 2025, which raised a demand comprising tax, interest, and penalties. The order stated that the taxpayer was required to reverse the ITC due to non-reversal resulting from credit notes issued by suppliers. Subsequently, on March 29, 2025, the petitioner filed an application for rectification of the adjudication order under Section 161 of the GST Act, outlining several grounds for this application.
The petitioner claimed that the ITC had been legitimately claimed based on GSTR-2A during the period in question. They detailed that credit notes were issued, against which ITC amounting to Rs. 2,94,44,152.93 had been reversed, as reflected in the GSTR-9. Supporting documents, including the Purchaser Register and reconciliation statements, were also submitted during the assessment proceedings.
Arguments of the Parties
Petitioner’s Arguments
The petitioner’s counsel, Sri Rudra Prasad Kar, emphasized that on August 7, 2025, a comprehensive reply was filed, asserting no excess ITC was claimed in GSTR-3B in comparison to GSTR-2A. They contended that, based on the GST Circular No. 105/24/2019-GST dated June 28, 2019, adjustments for credit notes issued (for reasons such as post-sale discounts) do not necessitate separate entries under GSTR-3B or DRC-3.
The petitioner argued:
- No Excess ITC Claimed: They demonstrated that the ITC claimed was within the limits defined by the reconciliation summary provided and therefore, no reversal was required under the GST Act.
- Supporting Documentation: The petitioner insisted that all necessary documents had been submitted and that the authorities had previously acknowledged these during the assessment phase.
- Violation of Natural Justice: The rejection of their rectification application was claimed to have flouted the fundamental principles of natural justice. The authority failed to adequately consider the reconciliation summary or verify the figures in the GST portal before rejecting the application.
- Lack of Due Consideration: According to the petitioner, the Assistant Commissioner did not provide opportunities for personal hearings nor duly considered the documents submitted. This indicated a lack of a thorough, fair review process.
Respondent’s Arguments
Representing the CT & GST Department, Mr. Sunil Mishra put forth a robust defense against the petitioner’s claims, arguing that:
- Assessment of Excess ITC: The authority justifiably rejected the petitioner’s claims based on findings that indicated excess ITC was claimed in GSTR-3B compared to the figures in GSTR-2A.
- Procedural Compliance: He argued that the petitioner failed to reverse the ineligible ITC and should be held accountable for this non-compliance.
- Dismissal of Writ: The respondent suggested that the writ petition should be dismissed on the grounds that the petitioner was attempting to bypass established remedies under the GST Act.
Analysis of the Court
Upon examining the records, the court noted that the petitioner had filed a detailed reply on August 7, 2025, which provided significant information addressing the need to reverse ITC, as specified by the concerned authority. The court observed that the petitioner had submitted an ITC reconciliation statement along with details addressing each alleged transaction, bolstering their case for rectification.
The court critically analyzed the proceedings under Section 73 and found that the rejection of the application for rectification was flawed. Notably, it was observed that:
- Insufficient Consideration of Evidence: The Assistant Commissioner’s order did not adequately consider the documents the petitioner claimed to have submitted or verify the available information from the GST portal, thereby failing to fulfill necessary legal standards.
- Lack of Opportunity for Hearing: The court emphasized that the petitioner was not afforded a fair opportunity to present their case, which is a violation of natural justice principles. The order of September 1, 2025, failed to provide substantive reasons for dismissing the petitioner’s claims.
- Procedural Validity: The court concluded that the order lacked a reasoned basis for the rejection of the rectification application, which is fundamentally required in administrative proceedings.
Final Order
Consequently, the court set aside the order dated September 1, 2025. The case was remanded back to the Assistant Commissioner of CT & GST, Bhubaneswar-1 Circle with explicit directions to reconsider the application for rectification dated March 29, 2025. The authority was instructed to thoroughly evaluate the grounds presented in the application along with all supporting documents and records that had reportedly been uploaded.
The court stipulated that the petitioner was entitled to a hearing before the Assistant Commissioner within fifteen working days of the order. It also emphasized that the petitioner must cooperate with the authority and not seek unnecessary adjournments during this process.
Finally, it was directed that, upon receipt of the order, the Assistant Commissioner should proceed to hear the petitioner, giving due consideration to the claims and supporting documents presented for rectification. If justified, a proper reasoned order rectifying the previous decision should be communicated to the petitioner promptly.
Case Title: M/s. Shree Bharat Motors Limited Vs The Chief Commissioner of CT & GST, Odisha and others
Read Attachment:
FOLLOW US FOR MORE LEGAL UPDATES ON YOUTUBE
